Is Stantec Inc. (TSE:STN) A Good Dividend Stock?
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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Stantec Inc. (TSE:STN) has been paying a dividend to shareholders. Today it yields 1.8%. Should it have a place in your portfolio? Let’s take a look at Stantec in more detail.
See our latest analysis for Stantec
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
Is it the top 25% annual dividend yield payer?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has the amount of dividend per share grown over the past?
Is is able to pay the current rate of dividends from its earnings?
Will it be able to continue to payout at the current rate in the future?
Does Stantec pass our checks?
The company currently pays out 88% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect STN’s payout to fall to 25% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.9%. However, EPS should increase to CA$1.67, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Stantec as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Stantec generates a yield of 1.8%, which is on the low-side for Professional Services stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Stantec for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three relevant factors you should look at:
Future Outlook: What are well-informed industry analysts predicting for STN’s future growth? Take a look at our free research report of analyst consensus for STN’s outlook.
Valuation: What is STN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether STN is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
