Dexterra Group (TSE:DXT) Is Due To Pay A Dividend Of CA$0.0875

The board of Dexterra Group Inc. (TSE:DXT) has announced that it will pay a dividend of CA$0.0875 per share on the 15th of October. Based on this payment, the dividend yield on the company's stock will be 5.7%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Dexterra Group

Dexterra Group's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Dexterra Group's dividend made up quite a large proportion of earnings but only 40% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to rise by 37.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 68%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dexterra Group Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2020, the dividend has gone from CA$0.30 total annually to CA$0.35. This means that it has been growing its distributions at 3.9% per annum over that time. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Dexterra Group Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Dexterra Group has been growing its earnings per share at 10% a year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Dexterra Group that investors need to be conscious of moving forward. Is Dexterra Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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