Transurban Group (ASX:TCL) Has Announced That It Will Be Increasing Its Dividend To A$0.32

The board of Transurban Group (ASX:TCL) has announced that the dividend on 25th of February will be increased to A$0.32, which will be 6.7% higher than last year's payment of A$0.30 which covered the same period. This makes the dividend yield 4.9%, which is above the industry average.

View our latest analysis for Transurban Group

Transurban Group's Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 587% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

The next 12 months is set to see EPS grow by 138.7%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of A$0.34 in 2014 to the most recent total annual payment of A$0.62. This means that it has been growing its distributions at 6.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Transurban Group might have put its house in order since then, but we remain cautious.

Transurban Group May Have Challenges Growing The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Transurban Group has been growing its earnings per share at 9.6% a year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Transurban Group's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Strong earnings growth means Transurban Group has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Transurban Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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