Pharos Energy (LON:PHAR) Is Due To Pay A Dividend Of $0.0077

Pharos Energy plc's (LON:PHAR) investors are due to receive a payment of $0.0077 per share on 19th of July. Including this payment, the dividend yield on the stock will be 5.2%, which is a modest boost for shareholders' returns.

View our latest analysis for Pharos Energy

Pharos Energy's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Even though Pharos Energy isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

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 0.7%, so there isn't too much pressure on the dividend.

historic-dividend

Pharos Energy's Dividend Has Lacked Consistency

Looking back, Pharos Energy's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2015, the dividend has gone from $0.139 total annually to $0.0139. The dividend has fallen 90% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Company Could Face Some Challenges Growing The Dividend

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's encouraging to see that Pharos Energy has been growing its earnings per share at 14% a year over the past five years. It's not great that the company is not turning a profit, but the decent growth in recent years is certainly a positive sign. If the company can become profitable soon, continuing on this trajectory would bode well for the future of the dividend.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Pharos Energy's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Pharos Energy that investors should know about before committing capital to this stock. Is Pharos Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.