Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see North American Construction Group Ltd. (TSE:NOA) is about to trade ex-dividend in the next four days. If you purchase the stock on or after the 3rd of March, you won't be eligible to receive this dividend, when it is paid on the 9th of April.
North American Construction Group's next dividend payment will be CA$0.04 per share, on the back of last year when the company paid a total of CA$0.16 to shareholders. Based on the last year's worth of payments, North American Construction Group stock has a trailing yield of around 1.0% on the current share price of CA$15.51. If you buy this business for its dividend, you should have an idea of whether North American Construction Group's dividend is reliable and sustainable. So we need to investigate whether North American Construction Group can afford its dividend, and if the dividend could grow.
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. North American Construction Group has a low and conservative payout ratio of just 9.2% of its income after tax. A useful secondary check can be to evaluate whether North American Construction Group generated enough free cash flow to afford its dividend. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that North American Construction Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see North American Construction Group has grown its earnings rapidly, up 65% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, North American Construction Group looks like a promising growth company.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. North American Construction Group has delivered 10% dividend growth per year on average over the past seven years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Should investors buy North American Construction Group for the upcoming dividend? North American Construction Group has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks North American Construction Group is facing. In terms of investment risks, we've identified 2 warning signs with North American Construction Group 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.
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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