Surge Energy (OTC:ZPTAF) Inc. (TSE:SGY) will distribute a dividend of CA$0.04 on November 15, offering an annual yield of 5.2%, in line with sector averages. However, the company's ability to sustain these dividends is under scrutiny due to a projected 89.4% drop in earnings per share over the next year, potentially inflating the payout ratio to a worrisome 155%.
The company's history since 2013 reveals a pattern of dividend cuts, with annual dividends plummeting from CA$3.40 to CA$0.48, marking an 86% decrease. This trend underscores potential operational challenges that Surge Energy needs to navigate.
Despite the anticipated earnings decline in the forthcoming year, the energy company has shown consistent growth in earnings over the past five years, reporting an annual increase of 32% in earnings per share. This steady growth rate indicates successful business reinvestment strategies implemented by the firm.
However, the recent issuance of new stock equivalent to 19% of all outstanding shares could exert downward pressure on future dividends. Despite this potential negative influence and the predicted earnings slump, Surge Energy's robust cash flow and adequate coverage of distributions by earnings suggest it may remain a viable dividend opportunity for investors. The year ahead will be crucial for the company as it battles to maintain its dividends amidst a challenging earnings forecast.
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