Element Fleet Management's (TSE:EFN) Upcoming Dividend Will Be Larger Than Last Year's
Element Fleet Management Corp.'s (TSE:EFN) dividend will be increasing from last year's payment of the same period to CA$0.10 on 14th of April. The payment will take the dividend yield to 2.1%, which is in line with the average for the industry.
See our latest analysis for Element Fleet Management
Element Fleet Management's Earnings Easily Cover The Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Element Fleet Management was paying only paying out a fraction of earnings, but the payment was a massive 98% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Over the next year, EPS is forecast to expand by 44.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.
Element Fleet Management's Dividend Has Lacked Consistency
It's comforting to see that Element Fleet Management has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the annual payment back then was CA$0.10, compared to the most recent full-year payment of CA$0.40. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Element Fleet Management has been growing its earnings per share at 27% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Element Fleet Management's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Element Fleet Management (1 is a bit unpleasant!) that you should be aware of before investing. Is Element Fleet Management not quite the opportunity you were looking for? Why not check out 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.
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