Important news for shareholders and potential investors in Stantec Inc (TSE:STN): The dividend payment of CA$0.14 per share will be distributed to shareholders on 11 October 2018, and the stock will begin trading ex-dividend at an earlier date, 27 September 2018. Should you diversify into Stantec and boost your portfolio income stream? Well, keep on reading because today, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
Does Stantec pass our checks?
The company currently pays out 44.7% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 27.1%, leading to a dividend yield of around 1.7%. However, EPS should increase to CA$1.69, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view Stantec as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Stantec has a yield of 1.7%, which is on the low-side for Professional Services stocks.
Now you know to keep in mind the reason why investors should be careful investing in Stantec for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three pertinent aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for STN’s future growth? Take a look at our free research report of analyst consensus for STN’s outlook.
- Valuation: What is STN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether STN is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.