The board of Primoris Services Corporation (NASDAQ:PRIM) has announced that it will pay a dividend of US$0.06 per share on the 14th of April. This makes the dividend yield 1.0%, which will augment investor returns quite nicely.
Primoris Services' Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Primoris Services' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
The next year is set to see EPS grow by 3.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 11% by next year, which is in a pretty sustainable range.
Primoris Services Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from US$0.10 in 2012 to the most recent annual payment of US$0.24. This means that it has been growing its distributions at 9.1% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Primoris Services has seen EPS rising for the last five years, at 33% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
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 the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Primoris Services has 2 warning signs (and 1 which is significant) we think you should know about. Is Primoris Services not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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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.