Orca Energy Group Inc. (CVE:ORC.B) will pay a dividend of $0.10 on the 12th of July. Based on this payment, the dividend yield on the company's stock will be 10.0%, which is an attractive boost to shareholder returns.

See our latest analysis for Orca Energy Group

Orca Energy Group Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Orca Energy Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

EPS is set to fall by 17.3% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 254%, which could put the dividend under pressure if earnings don't start to improve.

Orca Energy Group's Dividend Has Lacked Consistency

It's comforting to see that Orca Energy Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2019, the dividend has gone from $0.148 total annually to $0.291. This means that it has been growing its distributions at 14% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 17% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Orca Energy Group's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Orca Energy Group's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Orca Energy Group is a great stock to add to your portfolio if income is your focus.

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. For example, we've identified 3 warning signs for Orca Energy Group (1 is potentially serious!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.