Badger Infrastructure Solutions (TSE:BDGI) Is Paying Out A Dividend Of $0.18

Badger Infrastructure Solutions Ltd.'s (TSE:BDGI) investors are due to receive a payment of $0.18 per share on 15th of October. The dividend yield will be 2.0% based on this payment which is still above the industry average.

See our latest analysis for Badger Infrastructure Solutions

Badger Infrastructure Solutions' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Badger Infrastructure Solutions' dividend was only 43% of earnings, however it was paying out 129% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 39.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of $0.341 in 2014 to the most recent total annual payment of $0.519. This works out to be a compound annual growth rate (CAGR) of approximately 4.3% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Badger Infrastructure Solutions has seen earnings per share falling at 2.9% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Badger Infrastructure Solutions' 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. While Badger Infrastructure Solutions is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Badger Infrastructure Solutions that investors need to be conscious of moving forward. 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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