Monthly Dividend Stock In Focus: Surge Energy

Revealed on July seventeenth, 2025 by Aristofanis Papadatos

Surge Power (ZPTAF) has two interesting funding traits:

#1: It’s providing an above-average dividend yield of seven.8%, which is greater than six occasions the typical dividend yield of the S&P 500.

#2: It pays dividends month-to-month as a substitute of quarterly.

Associated: Record of month-to-month dividend shares

You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yields and payout ratios) by clicking on the hyperlink beneath:

Monthly Dividend Stock In Focus: Surge Energy

The mixture of an above-average dividend yield and a month-to-month dividend makes Surge Power a sexy choice for particular person buyers.

However there’s extra to the corporate than simply these components. Hold studying this text to study extra about Surge Power.

Enterprise Overview

Surge Power is an unbiased oil and gasoline exploration, improvement and manufacturing firm that operates primarily in Alberta, Saskatchewan and Manitoba.

The corporate holds a targeted and operated portfolio of sunshine and medium gravity crude oil belongings, together with massive oil‑in‑place reservoirs with low restoration components.

Surge Power maintains a big stock of low-risk improvement drilling areas, together with advancing water‑flood enhanced restoration tasks, whereas retaining operator management and excessive working pursuits throughout its key performs. Its technique revolves round disciplined capital allocation, together with focusing on the very best return alternatives.

Surge Power is headquartered in Calgary, Canada. It was based in 1998 below the identify Zapata Power and adjusted its identify to Surge Power in 2010. As 89% of the manufacturing of Surge Power is crude oil, the corporate needs to be considered as an nearly pure oil producer.

Surge Power presents buyers publicity to 2 of the highest 5 standard oil development performs in Canada, particularly the Sparky and Saskatchewan. Every of those two performs presents distinctive financial traits.

Supply: Investor Presentation

Because of the exceptionally excessive working netbacks of its crude oil reserves and low decline charges, Surge Power enjoys one of many widest free money movement margins (31%) in its peer group.

As an oil producer, Surge Power is delicate to the cycles of the oil trade. This sensitivity is clearly mirrored within the risky efficiency document of the corporate. On the brilliant facet, Surge Power has remained worthwhile each single yr during the last decade.

Even in 2020, when most oil producers incurred losses because of the coronavirus disaster, Surge Power remained worthwhile. It is a testomony to the prime quality and low manufacturing price of the reserves of the corporate.

Within the first quarter of this yr, Surge Power posted primarily flat manufacturing over the prior yr’s quarter nevertheless it benefited from larger realized oil costs and decrease hedging losses. Consequently, the adjusted funds movement per share of the corporate grew 8%, from $0.37 to $0.40.

As Surge Power is extremely delicate to the gyrations of the value of oil, it is very important study the standing of the worldwide oil market. OPEC supplied robust assist to the value of oil by way of unprecedented manufacturing cuts in the previous few years however this technique reached its limits final yr because of the growth of manufacturing in nations outdoors the cartel.

The U.S., Canada and Brazil, have been benefiting from the decreased output of OPEC and thus they’ve been rising their output at a quick tempo. Consequently, they’ve been gaining market share from OPEC whereas mitigating the impact of the sacrifices of OPEC members.

This case led many OPEC members, which depend on oil gross sales to fund their authorities budgets, to turn into dissatisfied with their decreased manufacturing quotas. Notably, Angola exited OPEC originally of 2024 resulting from its dissatisfaction with its low manufacturing quota.

On account of turmoil amongst its members, OPEC started to unwind its manufacturing cuts in April, with a said objective to boost its output by 2.2 million barrels per day till the top of 2026. As this shift within the coverage of OPEC is more likely to lead to a world surplus of oil, the value of oil has fallen beneath the technical assist of $70 this yr.

However, it has remained above common and thus Surge Power is more likely to stay extremely worthwhile this yr.

Progress Prospects

Surge Power has thrilling development potential, primarily because of its dominant land place within the Sparky space, which incorporates one of many largest accumulations of oil in Canada.

Supply: Investor Presentation

Because of its give attention to this extremely prolific space, Surge Power has grown its manufacturing within the Sparky space at a formidable fee, from 1,800 barrels per day in 2011 to roughly 13,000 barrels per day this yr.

As there are completely no indicators of fatigue, we anticipate robust manufacturing development to stay in place for the subsequent a number of years.

Alternatively, as an oil and gasoline producer, Surge Power is susceptible to the wild swings of the value of oil. The corporate posted document funds movement per share in 2022 because of the onset of the conflict in Ukraine and the resultant sanctions of the U.S. and European Union on Russia, which led the value of oil to skyrocket to a 13-year excessive.

Nevertheless, now that the worldwide oil market has absorbed the affect of the conflict in Ukraine and OPEC has begun to unwind its manufacturing cuts, the value of oil has moderated.

Consequently, the funds movement per share of Surge Power decreased from an all-time excessive of $2.96 in 2022 to $1.99 in 2024. We anticipate funds movement per share of roughly $2.05 this yr.

Regardless of the promising development prospects of Surge Power, now we have assumed flat funds movement per share over the subsequent 5 years with the intention to be on the protected facet, given the wild swings of the value of oil and the considerably excessive comparability base shaped by the anticipated funds movement per share this yr.

Surge Power has a considerably leveraged however first rate steadiness sheet. Its internet debt is $406 million, which is 84% of the market capitalization of the inventory. Below regular enterprise situations, the corporate just isn’t more likely to have any downside servicing its debt.

Alternatively, within the occasion of a extreme and extended downturn, Surge Power might come below some strain resulting from its considerably leveraged steadiness sheet.

However, the defensive enterprise mannequin of Surge Power, which has helped the corporate stay worthwhile even throughout the fiercest downturns of the vitality sector, renders this upstream participant pretty resilient to downturns.

Dividend & Valuation Evaluation

Surge Power is at the moment providing an above-average dividend yield of seven.8%, which is greater than six occasions the 1.2% yield of the S&P 500.

The inventory is an attention-grabbing candidate for earnings buyers, however they need to bear in mind that the dividend just isn’t solely protected because of the dramatic cycles of the value of oil.

With that mentioned, Surge Power has a wholesome payout ratio of solely 19%. Given additionally its high-quality belongings and its resultant promising development prospects, the corporate is more likely to increase its dividend within the upcoming years.

In reference to the valuation, Surge Power is at the moment buying and selling for two.4 occasions its anticipated funds movement per share this yr. Given the excessive cyclicality of the corporate, we assume a good price-to-funds movement ratio of two.0.

Subsequently, the present funds movement a number of is larger than our assumed honest price-to-funds movement ratio. If the inventory trades at its honest valuation stage in 5 years, it can incur a 3.4% annualized drag in its returns.

Considering flat funds movement per share over the subsequent 5 years, the 7.8% present dividend yield but in addition a 3.4% annualized headwind of valuation stage, Surge Power may supply a 4.8% common annual whole return over the subsequent 5 years.

Whereas the excessive dividend yield with a large margin of security is enticing, the anticipated whole return indicators that buyers ought to most likely anticipate a decrease entry level.

Closing Ideas

Surge Power has been thriving since 2021 because of a really perfect setting of above-average oil costs. The inventory is providing an above-average dividend yield of seven.8% however its considerably wealthy valuation indicators that buyers ought to most likely anticipate a extra opportune entry level.

It is usually necessary to notice that Surge Power has confirmed extremely susceptible to the cycles of the value of oil. Subsequently, it’s appropriate just for affected person buyers, who can endure excessive inventory worth volatility.