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 4 days. You will need to purchase shares before the 28th of August to receive the dividend, which will be paid on the 2nd of October.
North American Construction Group's next dividend payment will be CA$0.04 per share. Last year, in total, the company distributed CA$0.16 to shareholders. Last year's total dividend payments show that North American Construction Group has a trailing yield of 1.7% on the current share price of CA$9.61. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. North American Construction Group is paying out just 8.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether North American Construction Group generated enough free cash flow to afford its dividend. Luckily it paid out just 18% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see North American Construction Group's earnings have been skyrocketing, up 74% per annum for the past five years. North American Construction Group earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, seven years ago, North American Construction Group has lifted its dividend by approximately 10% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Is North American Construction Group worth buying for its 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.
While it's tempting to invest in North American Construction Group for the dividends alone, you should always be mindful of the risks involved. For example, we've found 4 warning signs for North American Construction Group (1 is a bit unpleasant!) that deserve your attention before investing in the shares.
If you're in the market for dividend stocks, we recommend checking our list of top 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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