Keyera (TSE:KEY) Is Paying Out A Dividend Of CA$0.16

The board of Keyera Corp. (TSE:KEY) has announced that it will pay a dividend on the 15th of December, with investors receiving CA$0.16 per share. This means the annual payment is 6.6% of the current stock price, which is above the average for the industry.

Our analysis indicates that KEY is potentially undervalued!

Keyera's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Over the next year, EPS is forecast to fall by 2.7%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 91%, which is definitely on the higher side.

Keyera Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of CA$1.02 in 2012 to the most recent total annual payment of CA$1.92. This works out to be a compound annual growth rate (CAGR) of approximately 6.5% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth Could Be Constrained

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Keyera has seen EPS rising for the last five years, at 12% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On Keyera's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Keyera that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.