Read This Before Considering Spark Energy, Inc. (NASDAQ:SPKE) For Its Upcoming US$0.18 Dividend
Spark Energy, Inc. (NASDAQ:SPKE) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 30th of November, you won't be eligible to receive this dividend, when it is paid on the 15th of December.
Spark Energy's next dividend payment will be US$0.18 per share. Last year, in total, the company distributed US$0.72 to shareholders. Last year's total dividend payments show that Spark Energy has a trailing yield of 7.2% on the current share price of $10.09. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Spark Energy has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Spark Energy
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Spark Energy paid out more than half (62%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 19% of its free cash flow in the last year.
It's positive to see that Spark Energy's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Spark Energy paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Spark Energy's earnings per share have fallen at approximately 15% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, six years ago, Spark Energy has lifted its dividend by approximately 7.1% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Final Takeaway
From a dividend perspective, should investors buy or avoid Spark Energy? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, it's hard to get excited about Spark Energy from a dividend perspective.
However if you're still interested in Spark Energy as a potential investment, you should definitely consider some of the risks involved with Spark Energy. To that end, you should learn about the 4 warning signs we've spotted with Spark Energy (including 1 which is concerning).
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.
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. 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.
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