Surge Energy Inc. (TSE:SGY) Pays A CA$0.043 Dividend In Just Three Days

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Surge Energy Inc. (TSE:SGY) is about to go ex-dividend in just three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Meaning, you will need to purchase Surge Energy's shares before the 31st of July to receive the dividend, which will be paid on the 15th of August.

The company's next dividend payment will be CA$0.043 per share. Last year, in total, the company distributed CA$0.48 to shareholders. Calculating the last year's worth of payments shows that Surge Energy has a trailing yield of 7.4% on the current share price of CA$6.94. If you buy this business for its dividend, you should have an idea of whether Surge Energy's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Surge Energy

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Surge Energy reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Surge Energy didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year it paid out 51% of its free cash flow as dividends, within the usual range for most companies.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Surge Energy reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Surge Energy's dividend payments per share have declined at 18% per year on average over the past 10 years, which is uninspiring.

We update our analysis on Surge Energy every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is Surge Energy an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Surge Energy's dividend merits.

If you're not too concerned about Surge Energy's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, Surge Energy has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.

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