Why You Might Be Interested In Element Fleet Management Corp. (TSE:EFN) For Its Upcoming Dividend

By
Simply Wall St
Published
March 25, 2021
TSX:EFN

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 Element Fleet Management Corp. (TSE:EFN) is about to go ex-dividend in just four days. You can purchase shares before the 30th of March in order to receive the dividend, which the company will pay on the 15th of April.

Element Fleet Management's upcoming dividend is CA$0.065 a share, following on from the last 12 months, when the company distributed a total of CA$0.26 per share to shareholders. Based on the last year's worth of payments, Element Fleet Management stock has a trailing yield of around 1.9% on the current share price of CA$13.75. If you buy this business for its dividend, you should have an idea of whether Element Fleet Management's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Element Fleet Management

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. Fortunately Element Fleet Management's payout ratio is modest, at just 36% of profit.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
TSX:EFN Historic Dividend March 25th 2021

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Element Fleet Management has grown its earnings rapidly, up 39% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last five years, Element Fleet Management has lifted its dividend by approximately 21% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Element Fleet Management worth buying for its dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating Element Fleet Management more closely.

In light of that, while Element Fleet Management has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 3 warning signs with Element Fleet Management and understanding them should be part of your investment process.

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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