Dexterra Group (TSE:DXT) Will Pay A Dividend Of CA$0.0875

The board of Dexterra Group Inc. (TSE:DXT) has announced that it will pay a dividend on the 15th of April, with investors receiving CA$0.0875 per share. This means the annual payment is 6.4% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Dexterra Group

Dexterra Group's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Dexterra Group's dividend made up quite a large proportion of earnings but only 38% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to rise by 73.9% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 62% which would be quite comfortable going to take the dividend forward.

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 annual payment back then 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 3.9% over that duration. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Dexterra Group May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 4.4% per year. 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

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Dexterra Group's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

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 1 warning sign for Dexterra Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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