Dexterra Group (TSE:DXT) Is Increasing Its Dividend To CA$0.087

By
Simply Wall St
Published
March 14, 2022
TSX:DXT
Source: Shutterstock

Dexterra Group Inc.'s (TSE:DXT) dividend will be increasing to CA$0.087 on 15th of April. This will take the annual payment to 4.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Dexterra Group

Dexterra Group's Dividend Is 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, Dexterra Group was paying out 87% of earnings, but a comparatively small 40% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 28.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 70%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

historic-dividend
TSX:DXT Historic Dividend March 14th 2022

Dexterra Group Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. Since 2020, the first annual payment was CA$0.30, compared to the most recent full-year payment of CA$0.35. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Dexterra Group to be a consistent dividend paying stock.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown at around 2.3% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for Dexterra Group that investors should take into consideration. 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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