Only Four Days Left To Cash In On Surge Energy's (TSE:SGY) Dividend

Surge Energy Inc. (TSE:SGY) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Surge Energy investors that purchase the stock on or after the 29th of April will not receive the dividend, which will be paid on the 15th of May.

The company's upcoming dividend is CA$0.04 a share, following on from the last 12 months, when the company distributed a total of CA$0.48 per share to shareholders. Based on the last year's worth of payments, Surge Energy has a trailing yield of 6.2% on the current stock price of CA$7.75. If you buy this business for its dividend, you should have an idea of whether Surge Energy's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Surge Energy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Surge Energy paid out a disturbingly high 301% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 55% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Surge Energy fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Surge Energy has grown its earnings rapidly, up 42% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Surge Energy's dividend payments per share have declined at 18% per year on average over the past 10 years, which is uninspiring. 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.

The Bottom Line

From a dividend perspective, should investors buy or avoid Surge Energy? Surge Energy has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

So if you want to do more digging on Surge Energy, you'll find it worthwhile knowing the risks that this stock faces. For instance, we've identified 6 warning signs for Surge Energy (1 doesn't sit too well with us) you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.