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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. You can purchase shares before the 29th of September in order to receive the dividend, which the company will pay on the 15th of October.
Primoris Services'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. Based on the last year's worth of payments, Primoris Services stock has a trailing yield of around 1.3% on the current share price of $17.89. 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.
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 has a low and conservative payout ratio of just 13% of its income after tax. 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 5.5% 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.
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. This is why it's a relief to see Primoris Services earnings per share are up 8.6% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Primoris Services has delivered 9.1% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Is Primoris Services worth buying for its dividend? Earnings per share have been growing moderately, and Primoris Services is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Primoris Services is halfway there. 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. To help with this, we've discovered 2 warning signs for Primoris Services that you should be aware of before investing in their 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.
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