Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Stantec Inc. (TSE:STN) is about to go ex-dividend in just 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Stantec's shares on or after the 29th of June, you won't be eligible to receive the dividend, when it is paid on the 15th of July.
The company's next dividend payment will be CA$0.17 per share, and in the last 12 months, the company paid a total of CA$0.66 per share. Based on the last year's worth of payments, Stantec stock has a trailing yield of around 1.2% on the current share price of CA$54.78. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Stantec paid out a comfortable 39% of its profit last year. A useful secondary check can be to evaluate whether Stantec generated enough free cash flow to afford its dividend. The good news is it paid out just 10% of its free cash flow in the last year.
It's positive to see that Stantec'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?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Stantec's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Stantec has delivered an average of 9.2% per year annual increase in its dividend, based on the past nine years of dividend payments.
To Sum It Up
Is Stantec an attractive dividend stock, or better left on the shelf? While it's not great to see that earnings per share are effectively flat over the nine-year period we checked, at least the payout ratios are low and conservative. In summary, it's hard to get excited about Stantec from a dividend perspective.
Curious what other investors think of Stantec? 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.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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