Gear Energy (TSE:GXE) Is Paying Out A Dividend Of CA$0.005

The board of Gear Energy Ltd. (TSE:GXE) has announced that it will pay a dividend of CA$0.005 per share on the 29th of September. This means the annual payment is 7.1% of the current stock price, which is above the average for the industry.

See our latest analysis for Gear Energy

Gear Energy Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Gear Energy's dividend was only 59% of earnings, however it was paying out 113% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

EPS is set to fall by 100.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach over 200%, which could put the dividend in jeopardy if the company's earnings don't improve.

Gear Energy Doesn't Have A Long Payment History

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Gear Energy has been growing its earnings per share at 42% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Gear Energy is a great stock to add to your portfolio if income is your focus.

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 instance, we've picked out 2 warning signs for Gear Energy that investors should take into consideration. 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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