Transurban Group's (ASX:TCL) Dividend Will Be Increased To AU$0.21

Transurban Group (ASX:TCL) has announced that it will be increasing its dividend on the 23rd of August to AU$0.21, which will be 34% higher than last year. Based on the announced payment, the dividend yield for the company will be 2.5%, which is fairly typical for the industry.

View our latest analysis for Transurban Group

Transurban Group's Distributions May Be Difficult To Sustain

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Even in the absence of profits, Transurban Group is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Recent, EPS has fallen by 30.5%, so this could continue over the next year. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from AU$0.24 in 2011 to the most recent annual payment of AU$0.31. This means that it has been growing its distributions at 2.6% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

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. Transurban Group's earnings per share has shrunk at 30% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Transurban Group's Dividend Doesn't Look Great

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

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. We have also put together a list of global stocks with a solid dividend.

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