Element Fleet Management Corp. (TSE:EFN) will pay a dividend of $0.13 on the 15th of January. This means the annual payment is 1.5% of the current stock price, which is above the average for the industry.
A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Based on the last payment, Element Fleet Management was earning enough to cover the dividend, but free cash flows weren’t positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
The next year is set to see EPS grow by 41.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.
Check out our latest analysis for Element Fleet Management
The company has a long dividend track record, but it doesn’t look great with cuts in the past. Since 2015, the dividend has gone from $0.0684 total annually to $0.368. This means that it has been growing its distributions at 18% per annum 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.
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. Element Fleet Management has impressed us by growing EPS at 47% 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.
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. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Element Fleet Management that investors should take into consideration. Is Element Fleet Management not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.