Should You Buy Aecon Group Inc. (TSE:ARE) For Its Upcoming Dividend?
It looks like Aecon Group Inc. (TSE:ARE) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Aecon Group's shares on or after the 23rd of September, you won't be eligible to receive the dividend, when it is paid on the 4th of October.
The company's upcoming dividend is CA$0.17 a share, following on from the last 12 months, when the company distributed a total of CA$0.70 per share to shareholders. Calculating the last year's worth of payments shows that Aecon Group has a trailing yield of 3.3% on the current share price of CA$20.9. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Aecon Group
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Aecon Group paid out a comfortable 38% of its profit last year. A useful secondary check can be to evaluate whether Aecon Group generated enough free cash flow to afford its dividend. It distributed 25% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Aecon Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Aecon Group, with earnings per share up 7.4% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Aecon Group has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Aecon Group an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Aecon Group is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Aecon Group is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Aecon Group for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 2 warning signs for Aecon Group (1 is significant) you should be aware of.
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.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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