The board of Badger Infrastructure Solutions Ltd. (TSE:BDGI) has announced that it will pay a dividend of $0.18 per share on the 15th of July. The dividend yield will be 1.7% based on this payment which is still above the industry average.
View our latest analysis for Badger Infrastructure Solutions
Badger Infrastructure Solutions’ Earnings Easily Cover The Distributions
A big dividend yield for a few years doesn’t mean much if it can’t be sustained. The last payment was quite easily covered by earnings, but it made up 428% of 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 36.7% over the next year. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company has a long dividend track record, but it doesn’t look great with cuts in the past. The annual payment during the last 10 years was $0.34 in 2014, and the most recent fiscal year payment was $0.523. This works out to be a compound annual growth rate (CAGR) of approximately 4.4% a year over that time. It’s encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
The Dividend’s Growth Prospects Are Limited
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. Badger Infrastructure Solutions has seen earnings per share falling at 2.3% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely – the opposite of dividend growth. It’s not all bad news though, as the earnings are predicted to rise over the next 12 months – we would just be a bit cautious until this can turn into a longer term trend.
The Dividend Could Prove To Be Unreliable
Overall, we don’t think this company makes a great dividend stock, even though the dividend wasn’t cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don’t think this company has the makings of a good income stock.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we’ve picked out 1 warning sign for Badger Infrastructure Solutions that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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