AltaGas (TSE:ALA) Has Announced A Dividend Of CA$0.2975

AltaGas Ltd. (TSE:ALA) has announced that it will pay a dividend of CA$0.2975 per share on the 28th of June. This takes the annual payment to 3.9% of the current stock price, which is about average for the industry.

View our latest analysis for AltaGas

AltaGas' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, AltaGas' dividend was only 54% of earnings, however it was paying out 510% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 19.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of CA$1.50 in 2014 to the most recent total annual payment of CA$1.19. The dividend has shrunk at around 2.3% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. AltaGas has seen EPS rising for the last five years, at 14% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On AltaGas' Dividend

Overall, we always like to see the dividend being raised, but we don't think AltaGas will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think AltaGas is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, AltaGas has 5 warning signs (and 1 which is concerning) we think you should know about. 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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