Gear Energy (TSE:GXE) Has Announced A Dividend Of CA$0.005

Gear Energy Ltd.'s (TSE:GXE) investors are due to receive a payment of CA$0.005 per share on 31st of May. This makes the dividend yield 7.8%, which will augment investor returns quite nicely.

See our latest analysis for Gear Energy

Gear Energy Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it 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 163%, 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. 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. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Gear Energy Might Find It Hard To Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Gear Energy has seen EPS rising for the last five years, at 23% per annum. 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.

Our Thoughts On Gear Energy's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. 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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