The board of Genie Energy Ltd. (NYSE:GNE) has announced that it will pay a dividend on the 31st of May, with investors receiving $0.075 per share. Including this payment, the dividend yield on the stock will be 2.0%, which is a modest boost for shareholders' returns.

See our latest analysis for Genie Energy

Genie Energy Doesn't Earn Enough To Cover Its Payments

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Genie Energy's dividend made up quite a large proportion of earnings but only 15% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

If the company can't turn things around, EPS could fall by 14.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 103%, which could put the dividend in jeopardy if the company's earnings don't improve.

Genie Energy's Dividend Has Lacked Consistency

Genie Energy has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 9 years was $0.24 in 2015, and the most recent fiscal year payment was $0.30. This means that it has been growing its distributions at 2.5% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 15% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for Genie Energy that investors should take into consideration. Is Genie Energy not quite the opportunity you were looking for? Why not check out 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.