AltaGas Ltd. (TSE:ALA) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of March to CA$0.28. This will take the dividend yield to an attractive 4.5%, providing a nice boost to shareholder returns.
See our latest analysis for AltaGas
AltaGas' Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, AltaGas was paying out 155% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.
Over the next year, EPS is forecast to expand by 48.8%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 91% - on the higher side, but we wouldn't necessarily say this is unsustainable.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was CA$1.38, compared to the most recent full-year payment of CA$1.12. Doing the maths, this is a decline of about 2.1% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
There Isn't Much Room To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. AltaGas has seen EPS rising for the last five years, at 7.5% per annum. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.
AltaGas' Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for AltaGas (of which 2 don't sit too well with us!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
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