Read This Before Considering Bird Construction Inc. (TSE:BDT) For Its Upcoming CA$0.07 Dividend

Bird Construction Inc. (TSE:BDT) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Bird Construction's shares before the 28th of November in order to be eligible for the dividend, which will be paid on the 19th of December.

The company's upcoming dividend is CA$0.07 a share, following on from the last 12 months, when the company distributed a total of CA$0.84 per share to shareholders. Based on the last year's worth of payments, Bird Construction stock has a trailing yield of around 3.4% on the current share price of CA$25.04. If you buy this business for its dividend, you should have an idea of whether Bird Construction's dividend is reliable and sustainable. So we need to investigate whether Bird Construction can afford its dividend, and if the dividend could grow.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bird Construction paid out a comfortable 48% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 171% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Bird Construction paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Bird Construction to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

View our latest analysis for Bird Construction

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Bird Construction has grown its earnings rapidly, up 50% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Bird Construction has lifted its dividend by approximately 1.0% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

Is Bird Construction worth buying for its dividend? We like that Bird Construction has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. To summarise, Bird Construction looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks Bird Construction is facing. Every company has risks, and we've spotted 1 warning sign for Bird Construction you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.