Exco Technologies Limited (TSE:XTC) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 13th of December in order to be eligible for this dividend, which will be paid on the 30th of December.
Exco Technologies’s next dividend payment will be CA$0.09 per share, on the back of last year when the company paid a total of CA$0.36 to shareholders. Looking at the last 12 months of distributions, Exco Technologies has a trailing yield of approximately 4.3% on its current stock price of CA$8.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Exco Technologies can afford its dividend, and if the dividend could grow.
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. Exco Technologies paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. 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. Thankfully its dividend payments took up just 40% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see that Exco Technologies’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we’re not too excited that Exco Technologies’s earnings are down 2.7% a year over the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, Exco Technologies has increased its dividend at approximately 18% a year on average. That’s interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company’s profits. This can be valuable for shareholders, but it can’t go on forever.
Should investors buy Exco Technologies for the upcoming dividend? We’re not enthused by the declining earnings per share, although at least the company’s payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of Exco Technologies’s dividend merits.
Curious what other investors think of Exco Technologies? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.