Dexterra Group's (TSE:DXT) Dividend Will Be CA$0.0875

Dexterra Group Inc.'s (TSE:DXT) investors are due to receive a payment of CA$0.0875 per share on 16th of January. This makes the dividend yield 6.5%, which will augment investor returns quite nicely.

See our latest analysis for Dexterra Group

Dexterra Group's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 218% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 44%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 19% which is fairly sustainable.

Dexterra Group Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The annual payment during the last 2 years was CA$0.30 in 2020, and the most recent fiscal year payment was CA$0.35. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. Dexterra Group has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Dexterra Group's EPS has fallen by approximately 14% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Dexterra Group's Dividend Doesn't Look Sustainable

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. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Dexterra Group that you should be aware of before investing. 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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