AltaGas (TSE:ALA) Has Affirmed Its Dividend Of CA$0.083

The board of AltaGas Ltd. (TSE:ALA) has announced that it will pay a dividend on the 15th of November, with investors receiving CA$0.083 per share. This means that the annual payment will be 3.8% of the current stock price, which is in line with the average for the industry.

See our latest analysis for AltaGas

AltaGas' Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, AltaGas was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

Over the next year, EPS is forecast to expand by 38.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was CA$1.32 in 2011, and the most recent fiscal year payment was CA$1.00. The dividend has shrunk at around 2.7% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that AltaGas has grown earnings per share at 38% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which AltaGas hasn't been doing.

AltaGas' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Strong earnings growth means AltaGas has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think AltaGas is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, AltaGas has 3 warning signs (and 1 which is a bit unpleasant) 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.

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.

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