Laurentian Bank of Canada (TSE:LB) Has Announced A Dividend Of CA$0.47

The board of Laurentian Bank of Canada (TSE:LB) has announced that it will pay a dividend of CA$0.47 per share on the 1st of August. This makes the dividend yield 7.1%, which will augment investor returns quite nicely.

See our latest analysis for Laurentian Bank of Canada

Laurentian Bank of Canada's Payment Expected To Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Laurentian Bank of Canada has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions unfortunately do not guarantee future ones, and Laurentian Bank of Canada's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is very worrying for shareholders, as this shows that Laurentian Bank of Canada will not be able to sustain its dividend at its current rate.

According to analysts, EPS should be several times higher in the next 3 years. They also estimate that the future payout ratio will be 49% in the same time horizon, so there isn't too much pressure on the dividend.

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 CA$2.00 in 2014, and the most recent fiscal year payment was CA$1.88. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn't what we are looking for.

Laurentian Bank of Canada May Find It Hard To Grow 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. In the last five years, Laurentian Bank of Canada's earnings per share has shrunk at approximately 3.2% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

We're Not Big Fans Of Laurentian Bank of Canada's Dividend

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the 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. For example, we've picked out 1 warning sign for Laurentian Bank of Canada that investors should know about before committing capital to this stock. Is Laurentian Bank of Canada 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.

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