The board of Aecon Group Inc. (TSE:ARE) has announced that it will pay a dividend on the 3rd of October, with investors receiving CA$0.185 per share. This makes the dividend yield 6.6%, which will augment investor returns quite nicely.
Aecon Group's Earnings Easily Cover The Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Aecon Group's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Looking forward, earnings per share is forecast to rise by 1.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 67% by next year, which is in a pretty sustainable range.
Aecon Group Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the dividend has gone from CA$0.28 total annually to CA$0.74. This means that it has been growing its distributions at 10% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Aecon Group has seen EPS rising for the last five years, at 15% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Aecon Group's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Aecon Group (of which 1 shouldn't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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