Stock Analysis

Aecon Group (TSE:ARE) Is Due To Pay 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 4th of April. The dividend yield will be 6.1% based on this payment which is still above the industry average.

Check out our latest analysis for Aecon Group

Aecon Group's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the dividend made up 149% of earnings, and the company was generating negative free cash flows. 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 140.0%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 68% which brings it into quite a comfortable range.

historic-dividend
TSX:ARE Historic Dividend March 4th 2023

Aecon Group Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of CA$0.28 in 2013 to the most recent total annual 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.

Aecon Group May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Although it's important to note that Aecon Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

Aecon Group's Dividend Doesn't Look Sustainable

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. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Aecon Group has 4 warning signs (and 1 which is significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.