The board of Matador Resources Company (NYSE:MTDR) has announced that it will be paying its dividend of $0.3125 on the 14th of March, an increased payment from last year's comparable dividend. This takes the annual payment to 2.4% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Matador Resources

Matador Resources' Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Matador Resources' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 14.9%. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

Matador Resources Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2021, the annual payment back then was $0.10, compared to the most recent full-year payment of $1.25. This implies that the company grew its distributions at a yearly rate of about 88% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Matador Resources has impressed us by growing EPS at 57% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Matador Resources Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Matador Resources is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Matador Resources that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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