Be Sure To Check Out Surge Energy Inc. (TSE:SGY) Before It Goes Ex-Dividend
It looks like Surge Energy Inc. (TSE:SGY) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Surge Energy's shares before the 30th of January to receive the dividend, which will be paid on the 15th of February.
The company's next dividend payment will be CA$0.04 per share. Last year, in total, the company distributed CA$0.48 to shareholders. Calculating the last year's worth of payments shows that Surge Energy has a trailing yield of 7.5% on the current share price of CA$6.36. If you buy this business for its dividend, you should have an idea of whether Surge Energy's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Surge Energy
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Surge Energy paid out a comfortable 30% of its profit last year. 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. Thankfully its dividend payments took up just 45% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Surge 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 the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Surge Energy's earnings have been skyrocketing, up 37% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
We'd also point out that Surge Energy issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Surge Energy has seen its dividend decline 18% per annum on average over the past 10 years, which is not great to see. Surge Energy is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Surge Energy worth buying for its dividend? Surge Energy has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Surge Energy, and we would prioritise taking a closer look at it.
In light of that, while Surge Energy has an appealing dividend, it's worth knowing the risks involved with this stock. For example, Surge Energy has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.
