Epsilon Energy Ltd.'s (NASDAQ:EPSN) investors are due to receive a payment of $0.0625 per share on 31st of December. Based on this payment, the dividend yield will be 4.3%, which is fairly typical for the industry.

View our latest analysis for Epsilon Energy

Epsilon Energy's Future Dividends May Potentially Be At Risk

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. This high of a dividend payment could start to put pressure on the balance sheet in the future.

If the company can't turn things around, EPS could fall by 4.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 108%, which could put the dividend under pressure if earnings don't start to improve.

Epsilon Energy Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The payments haven't really changed that much since 3 years ago. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Epsilon Energy May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Epsilon Energy has seen earnings per share falling at 4.0% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

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

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. 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. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Epsilon Energy has 3 warning signs (and 2 which are concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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