Stock Analysis

Aecon Group (TSE:ARE) Has Announced A Dividend Of CA$0.185

TSX:ARE
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Aecon Group Inc. (TSE:ARE) has announced that it will pay a dividend of CA$0.185 per share on the 5th of July. This means the annual payment is 5.5% of the current stock price, which is above the average for the industry.

View our latest analysis for Aecon Group

Aecon Group's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

Over the next year, EPS is forecast to expand by 97.0%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 66% which would be quite comfortable going to take the dividend forward.

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TSX:ARE Historic Dividend June 10th 2023

Aecon Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was CA$0.28, compared to the most recent full-year payment of CA$0.74. This means that it has been growing its distributions at 10% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

There Isn't Much Room To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Aecon Group has grown earnings per share at 6.2% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

Aecon Group's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Aecon Group's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.

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. Case in point: We've spotted 4 warning signs for Aecon Group (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.