The board of Aecon Group Inc. (TSE:ARE) has announced that it will pay a dividend of CA$0.185 per share on the 5th of July. This makes the dividend yield 5.5%, which will augment investor returns quite nicely.
Aecon Group's Earnings Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Aecon Group was paying out 118% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.
Looking forward, earnings per share is forecast to rise by 97.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Aecon Group Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was CA$0.28, compared to the most recent full-year payment of CA$0.74. This means that it has been growing its distributions at 10% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
There Isn't Much Room To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Aecon Group has been growing its earnings per share at 6.2% a year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.
Aecon Group's Dividend Doesn't Look Sustainable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Aecon Group has 4 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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