Investing in dividend stocks is generally viewed as a way to generate reliable income. However, caution is advised when the payout ratio of a company, like Birchcliff Energy, becomes excessively high. This could indicate that the dividends might not be sustainable over the long term, posing potential risks to investors looking for stable returns.

Top 10 Dividend Stocks In Canada

Click here to see the full list of 33 stocks from our Top TSX Dividend Stocks screener.

Below we spotlight one of our favorites from our exclusive screener and one you might the flick.

Top Pick

Total Energy Services

Simply Wall St Dividend Rating: ★★★★☆☆

Overview: Total Energy Services Inc. is an energy services company with operations mainly in Canada, the United States, and Australia, and it has a market capitalization of approximately CA$378.04 million.

Operations: The company generates revenue through several key segments: Well Servicing (CA$93.37 million), Contract Drilling Services (CA$286.01 million), Compression and Process Services (CA$397.05 million), and Rentals and Transportation Services (CA$82.87 million).

Dividend Yield: 3.7%

Total Energy Services maintains a sustainable dividend with a low payout ratio of 40% and an even lower cash payout ratio at 17.8%, ensuring dividends are well-covered by earnings and cash flows. Despite recent declines in quarterly sales and net income, the consistent dividend declaration, including the latest CAD 0.09 per share for Q2 2024, highlights management's confidence in financial stability. However, its dividend yield at 3.73% trails behind top Canadian payers, and historical volatility in payouts suggests potential uncertainty for long-term income-focused investors.

• Get an in-depth perspective on Total Energy Services' performance by reading our dividend report here.

• The valuation report we've compiled suggests that Total Energy Services' current price could be quite moderate.

One To Reconsider

Birchcliff Energy

Simply Wall St Dividend Rating: ★★☆☆☆☆

Overview: Birchcliff Energy Ltd. is an intermediate oil and natural gas company based in Western Canada, focusing on the exploration, development, and production of natural gas, light oil, condensate, and other natural gas liquids with a market capitalization of approximately CA$1.62 billion.

Operations: The company generates its revenue primarily from the exploration and production of oil and gas, totaling CA$669.45 million.

Dividend Yield: 6.7%

Birchcliff Energy's recent financial performance and dividend strategy highlight concerns for dividend-focused investors. Despite a reduction in net loss from CAD 42.55 million to CAD 15.04 million, the company struggles with a high payout ratio of 500.8%, indicating that its quarterly dividends, including the latest at $0.10 per share, are not sufficiently covered by earnings or free cash flow. Furthermore, while Birchcliff maintains steady production guidance and has shown some revenue growth, its inability to generate positive free cash flows alongside volatile and unreliable dividend payments over the past seven years makes it a less attractive option for those seeking stable dividend income.

• Click to explore a detailed breakdown of our findings in Birchcliff Energy's dividend report.

Key Takeaways

• Navigate through the entire inventory of 33 Top TSX Dividend Stocks here.

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Want To Explore Some Alternatives?

• Explore high-performing small cap companies that haven't yet garnered significant analyst attention.

• Fuel your portfolio with companies showing strong growth potential, backed by optimistic outlooks both from analysts and management.

• Find companies with promising cash flow potential yet trading below their fair value.

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.

Companies discussed in this article include TSX:TOT and TSX:BIR.

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