Yahoo Finance Surge Energy Inc. (TSE:SGY) Pays A CA$0.04 Dividend In Just Two Days
It looks like Surge Energy Inc. (TSE:SGY) is about to go ex-dividend in the next two days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Surge Energy's shares before the 29th of April in order to be eligible for the dividend, which will be paid on the 15th of May.
The company's next dividend payment will be CA$0.04 per share, and in the last 12 months, the company paid a total of CA$0.48 per share. Based on the last year's worth of payments, Surge Energy has a trailing yield of 6.2% on the current stock price of CA$7.80. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Surge Energy can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Surge Energy
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. An unusually high payout ratio of 301% of its profit suggests something is happening other than the usual distribution of profits to shareholders. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Surge Energy fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Surge Energy's earnings have been skyrocketing, up 42% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Surge Energy has seen its dividend decline 18% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Final Takeaway
Should investors buy Surge Energy for the upcoming dividend? Surge Energy has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
If you want to look further into Surge Energy, it's worth knowing the risks this business faces. Every company has risks, and we've spotted 6 warning signs for Surge Energy (of which 1 makes us a bit uncomfortable!) you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.
