Great-West Lifeco (TSE:GWO) Has Announced That It Will Be Increasing Its Dividend To CA$0.555

Great-West Lifeco Inc. (TSE:GWO) has announced that it will be increasing its periodic dividend on the 28th of March to CA$0.555, which will be 6.7% higher than last year's comparable payment amount of CA$0.52. This will take the dividend yield to an attractive 4.9%, providing a nice boost to shareholder returns.

View our latest analysis for Great-West Lifeco

Great-West Lifeco's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Great-West Lifeco's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 36.7%. If the dividend continues on this path, the payout ratio could be 53% by next year, which we think can be pretty sustainable going forward.

Great-West Lifeco Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of CA$1.23 in 2014 to the most recent total annual payment of CA$2.08. This means that it has been growing its distributions at 5.4% per annum 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 May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately, Great-West Lifeco's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Growth of 0.5% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Great-West Lifeco Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Great-West Lifeco is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Great-West Lifeco that investors should take into consideration. Is Great-West Lifeco not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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