In This Article:
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Surge Energy Inc. (TSE:SGY) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Surge Energy's shares before the 29th of November in order to be eligible for the dividend, which will be paid on the 16th of December.
The company's next dividend payment will be CA$0.043333 per share, on the back of last year when the company paid a total of CA$0.52 to shareholders. Based on the last year's worth of payments, Surge Energy has a trailing yield of 8.6% on the current stock price of CA$6.03. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
See 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 a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Surge Energy didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Surge Energy was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.