Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Genie Energy Ltd. (NYSE:GNE) is about to go ex-dividend in just 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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 Genie Energy's shares before the 14th of August in order to be eligible for the dividend, which will be paid on the 22nd of August.

The company's next dividend payment will be US$0.075 per share, and in the last 12 months, the company paid a total of US$0.30 per share. Looking at the last 12 months of distributions, Genie Energy has a trailing yield of approximately 1.9% on its current stock price of US$15.97. If you buy this business for its dividend, you should have an idea of whether Genie Energy's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Genie Energy paid out 99% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Genie Energy generated enough free cash flow to afford its dividend. Luckily it paid out just 14% of its free cash flow last year.

It's good to see that while Genie Energy's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

Click here to see how much of its profit Genie Energy paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Genie Energy's earnings per share have dropped 19% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Genie Energy has lifted its dividend by approximately 2.3% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Genie Energy is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

Has Genie Energy got what it takes to maintain its dividend payments? It's never great to see earnings per share declining, especially when a company is paying out 99% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of Genie Energy don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for Genie Energy that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking 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.