Stock Analysis

CES Energy Solutions' (TSE:CEU) Shareholders Will Receive A Bigger Dividend Than Last Year

Source: Shutterstock

CES Energy Solutions Corp.'s (TSE:CEU) dividend will be increasing from last year's payment of the same period to CA$0.02 on 14th of April. Even though the dividend went up, the yield is still quite low at only 2.8%.

See our latest analysis for CES Energy Solutions

CES Energy Solutions' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, CES Energy Solutions' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 111.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 7.3%, which is in the range that makes us comfortable with the sustainability of the dividend.

TSX:CEU Historic Dividend March 14th 2023

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was CA$0.20, compared to the most recent full-year payment of CA$0.08. This works out to be a decline of approximately 8.8% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. It's encouraging to see that CES Energy Solutions has been growing its earnings per share at 22% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On CES Energy Solutions' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While CES Energy Solutions is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for CES Energy Solutions (of which 1 is a bit unpleasant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether CES Energy Solutions is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis