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North American Construction Group Ltd. (TSE:NOA) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 4th of March will not receive this dividend, which will be paid on the 3rd of April.
North American Construction Group's next dividend payment will be CA$0.04 per share. Last year, in total, the company distributed CA$0.16 to shareholders. Calculating the last year's worth of payments shows that North American Construction Group has a trailing yield of 1.3% on the current share price of CA$12.52. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. North American Construction Group is paying out just 8.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether North American Construction Group generated enough free cash flow to afford its dividend. It paid out an unsustainably high 511% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how North American Construction Group intends to continue funding this dividend, or if it could be forced to the payment.
North American Construction Group paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were North American Construction Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see North American Construction Group's earnings have been skyrocketing, up 77% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. North American Construction Group has delivered an average of 12% per year annual increase in its dividend, based on the past six years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Is North American Construction Group worth buying for its dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Curious what other investors think of North American Construction Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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