Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Tamarack Valley Energy Ltd. (TSE:TVE) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Tamarack Valley Energy's shares before the 27th of September in order to receive the dividend, which the company will pay on the 15th of October.

The company's next dividend payment will be CA$0.0125 per share, on the back of last year when the company paid a total of CA$0.15 to shareholders. Calculating the last year's worth of payments shows that Tamarack Valley Energy has a trailing yield of 3.6% on the current share price of CA$4.20. If you buy this business for its dividend, you should have an idea of whether Tamarack Valley Energy's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Tamarack Valley Energy

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Tamarack Valley Energy paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 24% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Tamarack Valley Energy, with earnings per share up 6.9% on average over the last five years. Decent historical earnings per share growth suggests Tamarack Valley Energy has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, three years ago, Tamarack Valley Energy has lifted its dividend by approximately 15% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Tamarack Valley Energy an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest and Tamarack Valley Energy paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, while it has some positive characteristics, we're not inclined to race out and buy Tamarack Valley Energy today.

So while Tamarack Valley Energy looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 4 warning signs with Tamarack Valley Energy and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.