Granite Ridge Resources, Inc.'s (NYSE:GRNT) investors are due to receive a payment of $0.11 per share on 14th of March. Based on this payment, the dividend yield on the company's stock will be 6.9%, which is an attractive boost to shareholder returns.
View our latest analysis for Granite Ridge Resources
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Granite Ridge Resources was paying out 120% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.
EPS is set to grow by 37.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 88%, which is on the higher side, but certainly still feasible.
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2023, the dividend has gone from $0.32 total annually to $0.44. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. It's not great to see that Granite Ridge Resources' earnings per share has fallen at approximately 4.2% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. The dividend doesn't inspire confidence that it will provide solid income in the future.