Stock Analysis

Keyera (TSE:KEY) Has Announced A Dividend Of CA$0.16

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Keyera Corp.'s (TSE:KEY) investors are due to receive a payment of CA$0.16 per share on 31st of March. This makes the dividend yield 6.5%, which will augment investor returns quite nicely.

See our latest analysis for Keyera

Keyera Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share is forecast to rise by 42.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 98%, which probably can't continue without putting some pressure on the balance sheet.

TSX:KEY Historic Dividend March 14th 2023

Keyera Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was CA$1.02 in 2013, and the most recent fiscal year payment was CA$1.92. This means that it has been growing its distributions at 6.5% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Keyera May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Although it's important to note that Keyera's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Keyera's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Keyera (of which 1 doesn't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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