The board of Surge Energy Inc. (TSE:SGY) has announced that it will pay a dividend on the 17th of June, with investors receiving CA$0.04 per share. This makes the dividend yield 7.0%, which will augment investor returns quite nicely.
View our latest analysis for Surge Energy
Surge Energy Might Find It Hard To Continue The Dividend
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Surge Energy is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.
EPS is set to fall quite dramatically over the next 12 months. This means the company will be unprofitable, and with cash flows falling so quickly the cash payout ratio could rise, putting the dividend under pressure.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of CA$3.40 in 2014 to the most recent total annual payment of CA$0.48. This works out to a decline of approximately 86% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Company Could Face Some Challenges Growing The Dividend
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Surge Energy has impressed us by growing EPS at 45% per year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.
Our Thoughts On Surge Energy's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Surge Energy's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.
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. To that end, Surge Energy has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated 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.
About TSX:SGY
Surge Energy
Explores, develops, and produces oil and gas in western Canada.
Good value with adequate balance sheet.
