TELUS (TSE:T) Is Paying Out A Larger Dividend Than Last Year

TELUS Corporation (TSE:T) has announced that it will be increasing its dividend on the 1st of October to CA$0.32. The announced payment will take the dividend yield to 4.5%, which is in line with the average for the industry.

See our latest analysis for TELUS

TELUS Doesn't Earn Enough To Cover Its Payments

We aren't too impressed by dividend yields unless they can be sustained over time. 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 18.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 120%, which probably can't continue putting some pressure on the balance sheet.

TELUS Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from CA$0.50 in 2011 to the most recent annual payment of CA$1.26. This works out to be a compound annual growth rate (CAGR) of approximately 9.7% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. TELUS has seen earnings per share falling at 4.5% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

TELUS' Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, TELUS has 4 warning signs (and 1 which is significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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