The board of Peyto Exploration & Development Corp. (TSE:PEY) has announced that it will pay a dividend on the 15th of April, with investors receiving CA$0.11 per share. Based on this payment, the dividend yield on the company's stock will be 7.6%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Peyto Exploration & Development

Peyto Exploration & Development's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Peyto Exploration & Development was paying out quite a large proportion of both earnings and cash flow, with the dividend being 122% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next year is set to see EPS grow by 118.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.TSX:PEY Historic Dividend March 20th 2025

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was CA$1.20 in 2015, and the most recent fiscal year payment was CA$1.32. Dividend payments have been growing, but very slowly over the period. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Peyto Exploration & Development's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Peyto Exploration & Development has impressed us by growing EPS at 12% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Peyto Exploration & Development's payments, as there could be some issues with sustaining them into the future. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.

Story Continues

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Peyto Exploration & Development you should be aware of, and 1 of them makes us a bit uncomfortable. Is Peyto Exploration & Development not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

View Comments