Canada Markets closed
  • S&P/TSX

    20,383.77
    +39.70 (+0.20%)
     
  • S&P 500

    4,026.12
    -1.14 (-0.03%)
     
  • DOW

    34,347.03
    +152.97 (+0.45%)
     
  • CAD/USD

    0.7478
    -0.0021 (-0.2842%)
     
  • CRUDE OIL

    76.28
    -1.66 (-2.13%)
     
  • BTC-CAD

    22,170.30
    -224.60 (-1.00%)
     
  • CMC Crypto 200

    386.97
    +4.32 (+1.13%)
     
  • GOLD FUTURES

    1,754.00
    +8.40 (+0.48%)
     
  • RUSSELL 2000

    1,869.19
    +5.67 (+0.30%)
     
  • 10-Yr Bond

    3.6910
    -0.0150 (-0.40%)
     
  • NASDAQ

    11,226.36
    -58.96 (-0.52%)
     
  • VOLATILITY

    20.50
    +0.08 (+0.39%)
     
  • FTSE

    7,486.67
    +20.07 (+0.27%)
     
  • NIKKEI 225

    28,283.03
    -100.06 (-0.35%)
     
  • CAD/EUR

    0.7186
    -0.0015 (-0.21%)
     

Surge Energy Inc. (TSE:SGY) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Surge Energy Inc. (TSE:SGY) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Surge Energy's shares before the 28th of September in order to be eligible for the dividend, which will be paid on the 17th of October.

The company's next dividend payment will be CA$0.035 per share, and in the last 12 months, the company paid a total of CA$0.42 per share. Based on the last year's worth of payments, Surge Energy has a trailing yield of 5.5% on the current stock price of CA$7.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Surge Energy has a low and conservative payout ratio of just 1.7% of its income after tax. A useful secondary check can be to evaluate whether Surge Energy generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 4.3% of its cash flow last year.

It's positive to see that Surge Energy's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Surge Energy earnings per share are up 3.0% per annum over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

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 21% per annum on average over the past nine 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

Is Surge Energy worth buying for its dividend? Earnings per share have been growing moderately, and Surge Energy is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Surge Energy is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Surge Energy is facing. To help with this, we've discovered 7 warning signs for Surge Energy (1 is concerning!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking 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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here