Serica Energy (LON:SQZ) Will Pay A Smaller Dividend Than Last Year

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 9.1% 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 though Serica Energy is not generating a profit, it is still 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.

The next 12 months is set to see EPS grow by 138.2%. 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

It's comforting to see that Serica Energy has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2020, the annual payment back then was $0.0369, compared to the most recent full-year payment of $0.242. This works out to be a compound annual growth rate (CAGR) of approximately 46% a year over that time. Serica Energy has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, Serica Energy's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Serica Energy isn't actually turning a profit, which makes it much harder for us to see how they can grow dividends.

Serica Energy's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Serica Energy 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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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.