Laurentian Bank of Canada (TSE:LB) Is Paying Out A Dividend Of CA$0.47

The board of Laurentian Bank of Canada (TSE:LB) has announced that it will pay a dividend on the 1st of November, with investors receiving CA$0.47 per share. The dividend yield will be 7.3% based on this payment which is still above the industry average.

View our latest analysis for Laurentian Bank of Canada

Laurentian Bank of Canada's Dividend Forecasted To Be Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much.

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 an alarming sign that could mean that Laurentian Bank of Canada's dividend at its current rate may no longer be sustainable for longer.

Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. Additionally, they estimate future payout ratio will be 51% over the same time horizon, which makes us pretty comfortable with the sustainability of the dividend.

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. Since 2014, the dividend has gone from CA$2.04 total annually to CA$1.88. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Come By

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 not great to see that Laurentian Bank of Canada's earnings per share has fallen at approximately 7.8% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. 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.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Laurentian Bank of Canada is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Laurentian Bank of Canada that investors need to be conscious of moving forward. 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.