AltaGas (TSE:ALA) Is Due To Pay A Dividend Of CA$0.083

AltaGas Ltd.'s (TSE:ALA) investors are due to receive a payment of CA$0.083 per share on 15th of October. This makes the dividend yield 3.8%, which will augment investor returns quite nicely.

Check out our latest analysis for AltaGas

AltaGas' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, AltaGas was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.

Looking forward, earnings per share is forecast to rise by 38.6% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 50% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from CA$1.32 in 2011 to the most recent annual payment of CA$1.00. Doing the maths, this is a decline of about 2.7% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

AltaGas' Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that AltaGas has grown earnings per share at 39% per year over the past five years. However, AltaGas isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

AltaGas' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about AltaGas' payments, as there could be some issues with sustaining them into the future. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, AltaGas 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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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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