Gear Energy (TSE:GXE) Has Affirmed Its Dividend Of CA$0.005

The board of Gear Energy Ltd. (TSE:GXE) has announced that it will pay a dividend on the 31st of July, with investors receiving CA$0.005 per share. The dividend yield will be 8.3% based on this payment which is still above the industry average.

View our latest analysis for Gear Energy

Gear Energy Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Gear Energy's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

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 140%, which is a bit high and could start applying pressure to the balance sheet.

Gear Energy Doesn't Have A Long Payment History

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. Since 2022, the annual payment back then was CA$0.04, compared to the most recent full-year payment of CA$0.06. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. Gear Energy has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Gear Energy has grown earnings per share at 23% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing 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.

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