Stock Analysis

Exco Technologies (TSE:XTC) Is Paying Out A Larger Dividend Than Last Year

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TSX:XTC
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Exco Technologies Limited (TSE:XTC) will increase its dividend on the 30th of June to CA$0.10. This makes the dividend yield 4.8%, which is above the industry average.

See our latest analysis for Exco Technologies

Exco Technologies' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Exco Technologies' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Over the next year, EPS is forecast to expand by 44.4%. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

historic-dividend
TSX:XTC Historic Dividend May 1st 2022

Exco Technologies Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from CA$0.10 in 2012 to the most recent annual payment of CA$0.42. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

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. However, things aren't all that rosy. Earnings per share has been sinking by 13% over the last 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Exco Technologies' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Exco Technologies is a great stock to add to your portfolio if income is your focus.

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. For instance, we've picked out 2 warning signs for Exco Technologies that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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