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It looks like Surge Energy Inc. (TSE:SGY) is about to go ex-dividend in the next three 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Surge Energy's shares before the 28th of September in order to be eligible for the dividend, which will be paid on the 17th of October.
The company's next dividend payment will be CA$0.035 per share, and in the last 12 months, the company paid a total of CA$0.42 per share. Based on the last year's worth of payments, Surge Energy has a trailing yield of 5.5% on the current stock price of CA$7.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Surge Energy can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Surge 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. Surge Energy has a low and conservative payout ratio of just 1.7% of its income after tax. A useful secondary check can be to evaluate whether Surge Energy generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 4.3% of its cash flow last year.
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?
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. This is why it's a relief to see Surge Energy earnings per share are up 3.0% per annum over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.