ALLETE (NYSE:ALE) Is Increasing Its Dividend To $0.6775
The board of ALLETE, Inc. (NYSE:ALE) has announced that it will be paying its dividend of $0.6775 on the 1st of June, an increased payment from last year's comparable dividend. This will take the annual payment to 4.3% of the stock price, which is above what most companies in the industry pay.
See our latest analysis for ALLETE
ALLETE's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. At the time of the last dividend payment, ALLETE was paying out a very large proportion of what it was earning and 19,415% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
The next year is set to see EPS grow by 28.5%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 65% which would be quite comfortable going to take the dividend forward.
ALLETE 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 $1.84 in 2013, and the most recent fiscal year payment was $2.71. This means that it has been growing its distributions at 3.9% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
ALLETE May Find It Hard To Grow The Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Although it's important to note that ALLETE's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think ALLETE will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, ALLETE has 2 warning signs (and 1 which is a bit concerning) we think 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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