Serica Energy (LON:SQZ) Is Reducing Its Dividend To $0.06

Serica Energy plc's (LON:SQZ) dividend is being reduced from last year's payment covering the same period to $0.06 on the 20th of November. This means the annual payment is 8.9% of the current stock price, which is above the average for the industry.

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Serica Energy's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Serica Energy's Could Struggle to Maintain Dividend Payments In The Future

Serica Energy's Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Even in the absence of profits, Serica Energy is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Over the next year, EPS is forecast to expand by 145.0%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

See our latest analysis for Serica Energy

Serica Energy's Dividend Has Lacked Consistency

Serica Energy has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2020, the dividend has gone from $0.0369 total annually to $0.212. This works out to be a compound annual growth rate (CAGR) of approximately 42% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Serica Energy May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Serica Energy's EPS was effectively flat over the past five years, which could stop the company from paying more every year. With EPS growth hard to come by and the company not turning a profit, we wouldn't be particularly optimistic about the growth prospects for Serica Energy's dividend in the future.

Serica Energy's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. 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. However, there are other things to consider for investors when analysing stock performance. To that end, Serica Energy has 2 warning signs (and 1 which is significant) we think you should know about. Is Serica Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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