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The board of Bird Construction Inc. (TSE:BDT) has announced that it will pay a dividend of CA$0.0325 per share on the 20th of October. This makes the dividend yield 5.9%, which will augment investor returns quite nicely.
View our latest analysis for Bird Construction
Bird Construction's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Bird Construction's dividend was only 49% of earnings, however it was paying out 275% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Looking forward, earnings per share is forecast to rise by 43.7% over the next year. 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.
Bird Construction's Track Record Isn't Great
The dividend hasn't seen any major cuts in the last 10 years, but it has slowly been decreasing. Since 2012, the dividend has gone from CA$0.66 total annually to CA$0.39. This works out to be a decline of approximately 5.1% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Looks Likely To Grow
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Bird Construction has impressed us by growing EPS at 21% per year over the past five years. Bird Construction is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
Our Thoughts On Bird Construction's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bird Construction's payments, as there could be some issues with sustaining them into the future. While Bird Construction is earning enough to cover the payments, the cash flows are lacking. We don't think Bird Construction is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Bird Construction that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.