Aecon Group Inc. (TSE:ARE) will pay a dividend of CA$0.185 on the 3rd of October. This means the annual payment is 6.8% of the current stock price, which is above the average for the industry.
Aecon Group's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Aecon Group was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Over the next year, EPS is forecast to expand by 1.3%. 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
The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from CA$0.28 total annually to CA$0.74. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year 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. It's encouraging to see that Aecon Group has been growing its earnings per share at 15% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
Our Thoughts On Aecon Group's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Aecon Group has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
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