Here's What We Like About CES Energy Solutions' (TSE:CEU) Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that CES Energy Solutions Corp. (TSE:CEU) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase CES Energy Solutions' shares on or after the 31st of December, you won't be eligible to receive the dividend, when it is paid on the 15th of January.

The company's next dividend payment will be CA$0.0425 per share, and in the last 12 months, the company paid a total of CA$0.17 per share. Looking at the last 12 months of distributions, CES Energy Solutions has a trailing yield of approximately 1.4% on its current stock price of CA$12.19. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. CES Energy Solutions paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether CES Energy Solutions generated enough free cash flow to afford its dividend. Luckily it paid out just 23% of its free cash flow last year.

It's positive to see that CES Energy Solutions's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Check out our latest analysis for CES Energy Solutions

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see CES Energy Solutions has grown its earnings rapidly, up 49% a year for the past five years. CES Energy Solutions looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CES Energy Solutions's dividend payments per share have declined at 6.4% per year on average over the past 10 years, which is uninspiring. CES Energy Solutions is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Has CES Energy Solutions got what it takes to maintain its dividend payments? CES Energy Solutions has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks CES Energy Solutions is facing. In terms of investment risks, we've identified 1 warning sign with CES Energy Solutions and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking 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.