Canadian Utilities (TSE:CU) Is Paying Out A Larger Dividend Than Last Year
Canadian Utilities Limited (TSE:CU) has announced that it will be increasing its periodic dividend on the 1st of March to CA$0.4531, which will be 1.0% higher than last year's comparable payment amount of CA$0.449. This takes the dividend yield to 5.7%, which shareholders will be pleased with.
View our latest analysis for Canadian Utilities
Canadian Utilities' Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Canadian Utilities' dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 101% 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.
Earnings per share is forecast to rise by 9.1% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 81% - on the higher side, but we wouldn't necessarily say this is unsustainable.
Canadian Utilities Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the dividend has gone from CA$0.97 total annually to CA$1.79. This works out to be a compound annual growth rate (CAGR) of approximately 6.3% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
We Could See Canadian Utilities' Dividend Growing
Investors could be attracted to the stock based on the quality of its payment history. Canadian Utilities has seen EPS rising for the last five years, at 7.2% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think Canadian Utilities' payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Canadian Utilities (1 doesn't sit too well with us!) that you should be aware of before investing. Is Canadian Utilities 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.
