Keyera's (TSE:KEY) Dividend Will Be CA$0.16

Keyera Corp. (TSE:KEY) has announced that it will pay a dividend of CA$0.16 per share on the 16th of January. The dividend yield will be 6.7% based on this payment which is still above the industry average.

See our latest analysis for Keyera

Keyera's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Keyera's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. Generally, we think that this would be a risky long term practice.

EPS is set to fall by 3.0% over the next 12 months. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 91%, meaning that most of the company's earnings are being paid out to shareholders.

Keyera Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the annual payment back then was CA$1.02, compared to the most recent full-year 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. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. Keyera has impressed us by growing EPS at 12% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

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. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Keyera that investors need to be conscious of moving forward. Is Keyera 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.