The board of Beach Energy Limited (ASX:BPT) has announced that it will be paying its dividend of A$0.02 on the 3rd of October, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 2.6% is only a modest boost to shareholder returns.
Beach Energy's Earnings Easily Cover The Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. Beach Energy is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
The next year is set to see EPS grow by 57.5%. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from A$0.0225 total annually to A$0.04. This means that it has been growing its distributions at 5.9% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Beach Energy has seen EPS rising for the last five years, at 14% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Beach Energy's prospects of growing its dividend payments in the future.
Our Thoughts On Beach Energy's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 17 analysts we track are forecasting for Beach Energy for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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