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ADENTRA Inc. (TSE:ADEN) will increase its dividend from last year's comparable payment on the 31st of January to $0.15. Although the dividend is now higher, the yield is only 1.7%, which is below the industry average.
See our latest analysis for ADENTRA
ADENTRA's Payment Could Potentially Have Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. However, ADENTRA's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
If the trend of the last few years continues, EPS will grow by 13.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.16 in 2015 to the most recent total annual payment of $0.415. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that ADENTRA has been growing its earnings per share at 13% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for ADENTRA's prospects of growing its dividend payments in the future.
We should note that ADENTRA has issued stock equal to 12% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
ADENTRA Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that ADENTRA is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 ADENTRA you should be aware of, and 1 of them can't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.