Yahoo Finance Exco Technologies Limited (TSE:XTC) Passed Our Checks, And It's About To Pay A CA$0.095 Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Exco Technologies Limited (TSE:XTC) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 16th of March will not receive this dividend, which will be paid on the 30th of March.
Exco Technologies's next dividend payment will be CA$0.095 per share. Last year, in total, the company distributed CA$0.36 to shareholders. Last year's total dividend payments show that Exco Technologies has a trailing yield of 5.6% on the current share price of CA$6.48. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Exco Technologies
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Exco Technologies paying out a modest 48% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 35% of its free cash flow in the past year.
It's positive to see that Exco Technologies'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Exco Technologies's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Exco Technologies has delivered an average of 18% per year annual increase in its dividend, based on the past ten years of dividend payments.
Final Takeaway
Is Exco Technologies worth buying for its dividend? Earnings per share have been flat over this time, but we're intrigued to see that Exco Technologies is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Exco Technologies is halfway there. Overall we think this is an attractive combination and worthy of further research.
In light of that, while Exco Technologies has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Exco Technologies 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
