Bird Construction Inc. (TSE:BDT) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of August to CA$0.0358. This will take the dividend yield to an attractive 5.1%, providing a nice boost to shareholder returns.

Check out 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 earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 64.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range. historic-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 2013, the annual payment back then was CA$0.72, compared to the most recent full-year payment of CA$0.43. Doing the maths, this is a decline of about 5.0% per year. 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 dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. It's encouraging to see that Bird Construction has been growing its earnings per share at 53% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Bird Construction could prove to be a strong dividend payer.

Our Thoughts On Bird Construction's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Bird Construction's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Bird Construction (of which 1 is a bit unpleasant!) you should know about. 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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