Tethys Oil AB (published) (STO:TETY) investors are due to receive a payment of 2.00 kr per share on May 25. This payout means the dividend yield will be 2.4%, which is below the industry average.
See our latest analysis for Tethys Oil
Tethys Oil pays more than it pays
Even a low dividend yield can be attractive if it persists for years. Prior to this announcement, Tethys Oil was fairly comfortably covering its dividend with earnings and paying out more than 75% of its free cash flow to shareholders. The company earns enough to make the dividend feasible, but the cash payout ratio of 77% indicates that it is more focused on returning cash to shareholders than growing the business.
The next 12 months should see EPS grow by 180.7%. However, if the dividend continues to grow on recent trends, it could start to put pressure on the balance sheet, with the payout ratio reaching 156% over the next year.
Tethys Oil’s dividend lacked consistency
Even in its relatively short history, the company has cut the dividend at least once. If the company cuts once, that’s certainly no argument against the possibility of it cutting in the future. Since 2015, the first annual payment was $0.11, compared to $0.70 for the last annual payment. This implies that the company has increased its distributions at an annual rate of approximately 30% over this period. Dividends have grown rapidly over this period, but with cuts in the past, we’re not sure this stock will be a reliable source of income in the future.
The dividend should increase
With a relatively unstable dividend, it is even more important to see if earnings per share increase. We are encouraged to see that Tethys Oil has increased its earnings per share by 45% per year over the past five years. The company has no problem growing, despite returning much of the capital to shareholders, which is a very nice combination for a dividend-paying stock.
Our thoughts on the Tethys Oil dividend
Overall, we don’t think this company is generating a great dividend, even though the dividend hasn’t been cut this year. The low payout rate is an attractive feature, but in general we are not very happy with the payouts made by Tethys Oil. Overall, we don’t think this company has the makings of a good income stock.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. However, there are other things for investors to consider when analyzing stock performance. To this end, Tethys Oil has 3 warning signs (and 1 of concern) that we think you should know about. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.