How will you rate Surge Energy? Is it a good time to get in and is dividend safe?
Thanks for the assignment. Surge Energy Inc. (SGY TSX) has a number of factors working in its favour. They have a 15 year reserve life index, a ten year inventory of low risk development drilling locations, and management has forecast that they will exit 2014 with 21,350 barrels of oil equivalent per day of production. The composition of their output is 84% oil and natural gas liquids which is where you want to be in today’s market.
An inspection of the charts will help identify if SGY is offering a good entry point.
The three-year chart depicts the lift off the lowers near $2.50 in May of 2013 as the company announced changes in management, a private placement, and the sale of non core assets. These moves revitalized the stock and drove it above the 50 and the 200-day moving average to just over $5.00 by the end of the month. The advance continued into October of 2013 when the stock approached $7.00 but that was the end of the leg up. SGY pulled back to $5.50 by March of 2014 when it then began another move higher. Clearly not the smoothest ride but profitable none the less. What you want to monitor is how the shares perform with regards to resistance near $8.00 which has surfaced a number of times over the last ten years.
The six-month chart reveals the buy signals that the MACD and the RSI generated in March and again in June of 2014. Notice the support along the 50- day moving average in the same time periods. The next flex point for SGY is the release of Q2 results scheduled for August.
There are a lot of things to like in the story and the charts. The fact that growth is being driven by development drilling instead of exploration and that there is a ten year inventory of targets to drill are, in my opinion, favourable. The patterns exhibited on the charts are indicating that once the issue of resistance at $8.00 is resolved the shares could get to $9.00 without much trouble.
You asked about the sustainability of the dividend which is currently yielding 7.04%. The only comment I can make is that dividends are issued at the discretion of the board based on market conditions and execution of the business plan. In today’s interest rate environment 7.04% would suggest that you are earning a higher rate to compensate for the higher risk you have assumed.
Make it a profitable day and happy capitalism!