The board of California Resources Corporation (NYSE:CRC) has announced that it will pay a dividend of $0.3875 per share on the 16th of December. Even though the dividend went up, the yield is still quite low at only 2.7%.

View our latest analysis for California Resources

California Resources' Payment Could Potentially Have Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, California Resources was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 31.4% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 41%, which is comfortable for the company to continue in the future.

California Resources Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2021, the dividend has gone from $0.68 total annually to $1.55. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. In the last five years, California Resources' earnings per share has shrunk at approximately 5.6% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

An additional note is that the company has been raising capital by issuing stock equal to 34% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On California Resources' Dividend

Overall, we always like to see the dividend being raised, but we don't think California Resources will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 identified 3 warning signs for California Resources (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is California Resources not quite the opportunity you were looking for? Why not check out 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.