Surge Energy's (TSE:SGY) Dividend Will Be CA$0.04

The board of Surge Energy Inc. (TSE:SGY) has announced that it will pay a dividend on the 15th of April, 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's Distributions May Be Difficult To Sustain

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Surge Energy's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share is forecast to fall by 169.0% over the next year. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from CA$3.40 total annually to 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.

Surge Energy's Dividend Might Lack Growth

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Surge Energy has impressed us by growing EPS at 42% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

Our Thoughts On Surge Energy's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 5 warning signs for Surge Energy (1 is a bit unpleasant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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