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Primoris Services Corporation (NASDAQ:PRIM) Looks Interesting, And It's About To Pay A Dividend

·4 min read
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  • PRIM

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Primoris Services Corporation (NASDAQ:PRIM) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Primoris Services' shares on or after the 29th of June, you won't be eligible to receive the dividend, when it is paid on the 15th of July.  

 The company's upcoming dividend is US$0.06 a share, following on from the last 12 months, when the company distributed a total of US$0.24 per share to shareholders. Last year's total dividend payments show that Primoris Services has a trailing yield of 0.8% on the current share price of $29.55. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing. 

See our latest analysis for Primoris Services

 Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Primoris Services paid out just 10% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 4.6% of its free 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. 

 Click here to see the company's payout ratio, plus analyst estimates of its future dividends. 

Have Earnings And Dividends Been Growing?

 Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Primoris Services's earnings have been skyrocketing, up 27% per annum for the past five years. Primoris Services looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.    

 Primoris Services also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. 

 Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Primoris Services has lifted its dividend by approximately 9.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.   

 To Sum It Up 

 Is Primoris Services worth buying for its dividend? Primoris Services has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Primoris Services looks solid on this analysis overall, and we'd definitely consider investigating it more closely.   

 On that note, you'll want to research what risks Primoris Services is facing. Our analysis shows 3 warning signs for Primoris Services and you should be aware of these before buying any shares.  

 A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.