AltaGas Ltd. (TSE:ALA) Looks Interesting, And It's About To Pay A Dividend

AltaGas Ltd. (TSE:ALA) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase AltaGas' shares on or after the 14th of March will not receive the dividend, which will be paid on the 29th of March.

The company's next dividend payment will be CA$0.2975 per share, and in the last 12 months, the company paid a total of CA$1.12 per share. Looking at the last 12 months of distributions, AltaGas has a trailing yield of approximately 3.9% on its current stock price of CA$28.97. If you buy this business for its dividend, you should have an idea of whether AltaGas's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for AltaGas

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. AltaGas paid out a comfortable 49% of its profit last year. AltaGas paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see AltaGas earnings per share are up 9.9% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. AltaGas has seen its dividend decline 2.5% per annum on average over the past 10 years, which is not great to see. AltaGas is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

From a dividend perspective, should investors buy or avoid AltaGas? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. AltaGas ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

While it's tempting to invest in AltaGas for the dividends alone, you should always be mindful of the risks involved. We've identified 3 warning signs with AltaGas (at least 1 which is concerning), and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.