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The board of Cargojet Inc. (TSE:CJT) has announced that it will pay a dividend of CA$0.286 per share on the 5th of July. This payment means the dividend yield will be 1.1%, which is below the average for the industry.
View our latest analysis for Cargojet
Cargojet's Dividend Is Well Covered By Earnings
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Cargojet's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Over the next year, EPS is forecast to fall by 67.5%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 23%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Cargojet Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the dividend has gone from CA$0.568 total annually to CA$1.14. This means that it has been growing its distributions at 7.3% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Cargojet has impressed us by growing EPS at 52% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
Our Thoughts On Cargojet's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.
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 3 warning signs for Cargojet you should be aware of, and 2 of them shouldn'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.
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