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Income Investors Should Know That Genie Energy Ltd. (NYSE:GNE) Goes Ex-Dividend Soon

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Genie Energy Ltd. (NYSE:GNE) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 23rd of March to receive the dividend, which will be paid on the 3rd of April.

Genie Energy's next dividend payment will be US$0.075 per share, on the back of last year when the company paid a total of US$0.30 to shareholders. Based on the last year's worth of payments, Genie Energy has a trailing yield of 4.5% on the current stock price of $6.61. If you buy this business for its dividend, you should have an idea of whether Genie 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 Genie Energy

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Genie Energy paid out 296% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 63% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while Genie Energy's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Genie Energy paid out over the last 12 months.

NYSE:GNE Historical Dividend Yield, March 18th 2020
NYSE:GNE Historical Dividend Yield, March 18th 2020

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Genie Energy has grown its earnings rapidly, up 50% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Genie Energy has delivered an average of 5.2% per year annual increase in its dividend, based on the past eight years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Genie Energy is keeping back more of its profits to grow the business.

Final Takeaway

Has Genie Energy got what it takes to maintain its dividend payments? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Genie Energy's dividend merits.

If you want to look further into Genie Energy, it's worth knowing the risks this business faces. For example - Genie Energy has 4 warning signs we think you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.