Exco Technologies (TSE:XTC) Is Paying Out A Dividend Of CA$0.105

Exco Technologies Limited (TSE:XTC) has announced that it will pay a dividend of CA$0.105 per share on the 31st of March. This makes the dividend yield 5.4%, which will augment investor returns quite nicely.

See our latest analysis for Exco Technologies

Exco Technologies' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Exco Technologies' dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. Generally, we think that this would be a risky long term practice.

Looking forward, earnings per share is forecast to rise by 12.6% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 75% which would be quite comfortable going to take the dividend forward.

Exco Technologies Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was CA$0.15 in 2013, and the most recent fiscal year payment was CA$0.42. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Exco Technologies' earnings per share has shrunk at 11% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Exco Technologies that investors should take into consideration. Is Exco Technologies not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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

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.