Transurban Group (ASX:TCL) Has Announced That It Will Be Increasing Its Dividend To A$0.34

Transurban Group's (ASX:TCL) dividend will be increasing from last year's payment of the same period to A$0.34 on 24th of February. This takes the dividend yield to 4.4%, which shareholders will be pleased with.

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Estimates Indicate Transurban Group's Could Struggle to Maintain Dividend Payments In The Future

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to grow rapidly. If recent patterns in the dividend continues, we would start to get a bit worried, with the payout ratio possibly reaching 249%.

See our latest analysis for Transurban Group

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was A$0.41 in 2015, and the most recent fiscal year payment was A$0.66. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Transurban Group has grown earnings per share at 64% per year over the past five years. Although earnings per share is up nicely Transurban Group is paying out 1,517% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Transurban Group's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Transurban Group's payments are rock solid. 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. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Transurban Group (of which 2 are concerning!) 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.