Stantec Inc. (TSE:STN) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 30th of December to receive the dividend, which will be paid on the 15th of January.
Stantec's next dividend payment will be CA$0.15 per share, and in the last 12 months, the company paid a total of CA$0.62 per share. Looking at the last 12 months of distributions, Stantec has a trailing yield of approximately 1.5% on its current stock price of CA$41.17. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Stantec's payout ratio is modest, at just 36% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 11% of its cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Stantec's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past nine years, Stantec has increased its dividend at approximately 8.4% a year on average.
The Bottom Line
Is Stantec an attractive dividend stock, or better left on the shelf? While it's not great to see that earnings per share are effectively flat over the nine-year period we checked, at least the payout ratios are low and conservative. To summarise, Stantec looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Wondering what the future holds for Stantec? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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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