Dexterra Group Inc. (TSE:DXT) has announced that it will pay a dividend of CA$0.0875 per share on the 13th of October. This means the annual payment is 6.0% of the current stock price, which is above the average for the industry.
Check out our latest analysis for Dexterra Group
Dexterra Group Doesn't Earn Enough To Cover Its Payments
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 149% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 46%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
The next 12 months is set to see EPS grow by 56.4%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 128% over the next year.
Dexterra Group Is Still Building Its Track Record
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of CA$0.30 in 2020 to the most recent total annual payment of CA$0.35. This means that it has been growing its distributions at 5.3% per annum over that time. Dexterra Group has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.
Dividend Growth May Be Hard To Come By
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. It's not great to see that Dexterra Group's earnings per share has fallen at approximately 6.8% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Dexterra Group's Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Dexterra Group is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Dexterra Group you should be aware of, and 1 of them is a bit unpleasant. Is Dexterra Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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