Stock Analysis

Laurentian Bank of Canada's (TSE:LB) Dividend Will Be Increased To CA$0.47

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Laurentian Bank of Canada (TSE:LB) will increase its dividend from last year's comparable payment on the 1st of August to CA$0.47. This takes the annual payment to 5.8% of the current stock price, which is about average for the industry.

View our latest analysis for Laurentian Bank of Canada

Laurentian Bank of Canada's Earnings Will Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time.

Laurentian Bank of Canada has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Laurentian Bank of Canada's payout ratio of 39% is a good sign as this means that earnings decently cover dividends.

The next year is set to see EPS grow by 5.2%. If the dividend continues along recent trends, we estimate the future payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

TSX:LB Historic Dividend June 6th 2023

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was CA$1.88, compared to the most recent full-year payment of CA$1.84. 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.

Laurentian Bank of Canada May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Laurentian Bank of Canada's earnings per share has fallen at approximately 3.9% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. 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.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Laurentian Bank of Canada's payments are rock solid. While Laurentian Bank of Canada is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Laurentian Bank of Canada (1 is potentially serious!) that you should be aware of before investing. 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.