Ovintiv Inc. (NYSE:OVV) will pay a dividend of $0.30 on the 28th of June. Including this payment, the dividend yield on the stock will be 2.4%, which is a modest boost for shareholders' returns.

See our latest analysis for Ovintiv

Ovintiv's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Ovintiv's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 9.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 13%, which is in the range that makes us comfortable with the sustainability of 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 $4.00 in 2014, and the most recent fiscal year payment was $1.20. This works out to a decline of approximately 70% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. We are encouraged to see that Ovintiv has grown earnings per share at 17% per year over the past five years. Ovintiv definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Ovintiv Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think Ovintiv might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 6 warning signs for Ovintiv (of which 1 doesn't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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.