Spark Energy, Inc.'s (NASDAQ:SPKE) investors are due to receive a payment of US$0.18 per share on 15th of September. Based on this payment, the dividend yield on the company's stock will be 6.5%, which is an attractive boost to shareholder returns.

View our latest analysis for Spark Energy

Spark Energy Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Looking forward, EPS could fall by 6.0% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 128%, which could put the dividend under pressure if earnings don't start to improve.

Spark Energy Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2014, the first annual payment was US$0.48, compared to the most recent full-year payment of US$0.72. This works out to be a compound annual growth rate (CAGR) of approximately 6.0% a year over that time. Spark Energy has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Spark Energy's earnings per share has shrunk at approximately 6.0% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

We're Not Big Fans Of Spark Energy's Dividend

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Spark Energy make more consistent payments in the future. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Spark Energy you should be aware of, and 1 of them makes us a bit uncomfortable. We have also put together a list of global stocks with a solid dividend.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.