Beach Energy Limited (ASX:BPT) has announced that it will pay a dividend of A$0.02 per share on the 30th of September. Including this payment, the dividend yield on the stock will be 3.1%, which is a modest boost for shareholders' returns.

View our latest analysis for Beach Energy

Beach Energy's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Even though Beach Energy is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, so there isn't too much pressure on the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was A$0.0275 in 2014, and the most recent fiscal year payment was A$0.04. This implies that the company grew its distributions at a yearly rate of about 3.8% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Beach Energy's EPS has fallen by approximately 32% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

We're Not Big Fans Of Beach Energy's Dividend

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. 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. Overall, this doesn't get us very excited from an income standpoint.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Beach Energy that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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