The board of Primoris Services Corporation (NYSE:PRIM) has announced that it will pay a dividend of $0.06 per share on the 14th of July. Based on this payment, the dividend yield on the company's stock will be 1.0%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Primoris Services
Primoris Services' Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Primoris Services is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
The next year is set to see EPS grow by 30.8%. If the dividend continues on this path, the payout ratio could be 7.3% by next year, which we think can be pretty sustainable going forward.
Primoris Services Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.12 in 2013, and the most recent fiscal year payment was $0.24. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Primoris Services has grown earnings per share at 15% per year over the past five years. Primoris Services definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Primoris Services is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Primoris Services (of which 1 is potentially serious!) you should know about. Is Primoris Services not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.