Stock Analysis

Exco Technologies (TSE:XTC) Is Increasing Its Dividend To CA$0.10

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TSX:XTC
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Exco Technologies Limited's (TSE:XTC) dividend will be increasing to CA$0.10 on 31st of March. This makes the dividend yield 4.4%, which is above the industry average.

View our latest analysis for Exco Technologies

Exco Technologies' Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, Exco Technologies is earning enough to cover the payment, but the it makes up 1,123% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to fall by 7.0%. If the dividend continues along recent trends, we estimate the payout ratio could be 61%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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TSX:XTC Historic Dividend February 7th 2022

Exco Technologies Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the first annual payment was CA$0.10, compared to the most recent full-year payment of CA$0.53. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. In the last five years, Exco Technologies' earnings per share has shrunk at approximately 7.0% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Exco Technologies' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Exco Technologies' payments are rock solid. While Exco Technologies is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Are management backing themselves to deliver performance? Check their shareholdings in Exco Technologies in our latest insider ownership analysis. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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