Diversified Energy’s Dividend Shifts Gear (LON: DEC)

Investors in search of high-yield dividend stocks on the FTSE 250 have been closely monitoring Diversified Energy Company (LON: DEC), which currently tops the list with an extraordinary dividend yield that is close to 20% at the latest trading price. This figure is well above the average yield, and it seems time is now for a shift to a more sustainable yield.

Despite the yield attracting income investors, Diversified Energy's share price has taken a tumble over the last year, falling a little over 50%.

The pace of decline has accelerated in the last month after a mini rally, with a drop of 25% in the last 30 days bringing the stock down to 932.50p. As you can see from the 12 month chart below, DEC is in a downwards channel that it has yet to break.

Despite Diversified Energy's impressive dividend yield, the company itself is relatively small in stature within the market, boasting a market capitalization of £441 alongside revenues of £683.3m recorded last year. This juxtaposition of a high dividend yield against a small market cap raises concerns about the company's ability to maintain such payouts.

Moreover, the company's financial health appears to be in decline, with full-year results for 2023 showing a significant downturn in performance. Revenue and earnings both took substantial hits, plummeting by 62% and 58% respectively when compared to the prior year. This sharp downturn has inevitably led to a re-evaluation of dividend distribution.

In light of the strain on earnings and carrying a substantial debt load, Diversified Energy Company is poised to trim its dividend payments significantly. Shareholders can expect to see a reduced yield of ~8% per share. This proactive measure appears to be a bid to preserve the company's financial stability in face of dwindling earnings.

Shareholders of record on 28th November will be entitled to a dividend of $0.29, to be paid on December 27th. This would represent a yield a little over 2%, bringing dividends in line with expectations.

While high dividend yields like those offered by Diversified Energy can be enticing, investors need to assess the sustainability and risks associated with such rates, along with price action. A high dividend name is great when there is price stability, or growth on the cards, but when sentiment has the bears in charge it can be challenging to maintain both for holders, and the company itself.

In other recent news aimed to provide shareholder value, the company has also bought back 81,292 of it's own shares which are intended to be struck off, reducing total shares in issue.

A thorough analysis is needed as usual before considering. A break out of this channel on strong volume that is then supported would be a welcome sign for holders.