ATCO (TSE:ACO.X) Will Pay A Larger Dividend Than Last Year At CA$0.4898

ATCO Ltd. (TSE:ACO.X) has announced that it will be increasing its periodic dividend on the 31st of March to CA$0.4898, which will be 3.0% higher than last year's comparable payment amount of CA$0.476. This makes the dividend yield 5.0%, which is above the industry average.

Check out our latest analysis for ATCO

ATCO's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, ATCO's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

EPS is set to fall by 1.4% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 57%, which we are pretty comfortable with and we think is feasible on an earnings basis.

ATCO Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from CA$0.75 total annually to CA$1.9. This works out to be a compound annual growth rate (CAGR) of approximately 9.8% 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.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that ATCO has been growing its earnings per share at 14% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

We Really Like ATCO's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for ATCO that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.