Gear Energy (TSE:GXE) Will Pay A Dividend Of CA$0.005

Gear Energy Ltd. (TSE:GXE) will pay a dividend of CA$0.005 on the 31st of January. The dividend yield will be 9.4% based on this payment which is still above the industry average.

See our latest analysis for Gear Energy

Gear Energy's Earnings Easily Cover The Distributions

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 66% of earnings, however it was paying out 199% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS could expand by 85.2% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.

Gear Energy Is Still Building Its Track Record

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 dividend has gone from CA$0.04 total annually to CA$0.06. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

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 85% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Gear Energy could prove to be a strong dividend payer.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Gear Energy is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Gear Energy that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.