Advertisement
Canada markets open in 8 hours 14 minutes
  • S&P/TSX

    21,611.30
    +23.42 (+0.11%)
     
  • S&P 500

    5,487.03
    +13.80 (+0.25%)
     
  • DOW

    38,834.86
    +56.76 (+0.15%)
     
  • CAD/USD

    0.7288
    -0.0003 (-0.04%)
     
  • CRUDE OIL

    81.56
    -0.01 (-0.01%)
     
  • Bitcoin CAD

    89,762.60
    -428.62 (-0.48%)
     
  • CMC Crypto 200

    1,350.92
    -38.48 (-2.77%)
     
  • GOLD FUTURES

    2,342.30
    -4.60 (-0.20%)
     
  • RUSSELL 2000

    2,025.23
    +3.22 (+0.16%)
     
  • 10-Yr Bond

    4.2170
    -0.0620 (-1.45%)
     
  • NASDAQ futures

    19,940.50
    +21.25 (+0.11%)
     
  • VOLATILITY

    12.30
    -0.45 (-3.53%)
     
  • FTSE

    8,191.29
    +49.14 (+0.60%)
     
  • NIKKEI 225

    38,462.85
    -19.26 (-0.05%)
     
  • CAD/EUR

    0.6786
    +0.0001 (+0.01%)
     

Gear Energy's (TSE:GXE) Dividend Will Be CA$0.005

Gear Energy Ltd. (TSE:GXE) will pay a dividend of CA$0.005 on the 31st of May. The dividend yield will be 7.8% based on this payment which is still above the industry average.

View our latest analysis for Gear Energy

Gear Energy Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 286% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 75%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

ADVERTISEMENT

Earnings per share could rise by 23.0% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 163%, which is a bit high and could start applying pressure to the balance sheet.

historic-dividend
historic-dividend

Gear Energy 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 2 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of CA$0.04 in 2022 to the most recent total annual payment of CA$0.06. This means that it has been growing its distributions at 22% per annum over that time. 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.

Gear Energy Might Find It Hard To Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Gear Energy has seen EPS rising for the last five years, at 23% per annum. Although earnings per share is up nicely Gear Energy is paying out 286% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Gear Energy that investors should know about before committing capital to this stock. Is Gear Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.