Aecon Group (TSE:ARE) Will Pay A Dividend Of CA$0.19

The board of Aecon Group Inc. (TSE:ARE) has announced that it will pay a dividend on the 2nd of October, with investors receiving CA$0.19 per share. This makes the dividend yield 3.9%, which will augment investor returns quite nicely.

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Aecon Group's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Aecon Group was paying out 191% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 51%, which is in a comfortable range for us.

See our latest analysis for Aecon Group

Aecon Group Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from CA$0.36 total annually to CA$0.76. This means that it has been growing its distributions at 7.8% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 12% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Aecon Group's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. However, there are other things to consider for investors when analysing stock performance. To that end, Aecon Group has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is Aecon Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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