The board of Primoris Services Corporation (NASDAQ:PRIM) has announced that it will pay a dividend of $0.06 per share on the 14th of October. This means the annual payment is 1.4% of the current stock price, which is above the average for the industry.
Primoris Services' Earnings Easily Cover The Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Primoris Services was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Over the next year, EPS is forecast to expand by 55.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 6.9%, which is in the range that makes us comfortable with the sustainability of the dividend.
Primoris Services Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the annual payment back then was $0.12, compared to the most recent full-year payment of $0.24. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Primoris Services has been growing its earnings per share at 20% a year over the past five years. Primoris Services definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Primoris Services' payments, as there could be some issues with sustaining them into the future. While Primoris Services is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
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. For example, we've identified 2 warning signs for Primoris Services (1 can't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
What are the risks and opportunities for Primoris Services?
Price-To-Earnings ratio (11.5x) is below the US market (15.5x)
Earnings are forecast to grow 12.8% per year
Earnings have grown 14.3% per year over the past 5 years
Debt is not well covered by operating cash flow
Significant insider selling over the past 3 months
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
Primoris Services Corporation, a specialty contractor company, provides a range of construction, fabrication, maintenance, replacement, and engineering services in the United States and Canada.
Fair value with mediocre balance sheet.