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

The board of AltaGas Ltd. (TSE:ALA) has announced that it will pay a dividend on the 15th of December, with investors receiving CA$0.083 per share. This means the dividend yield will be fairly typical at 3.9%.

See our latest analysis for AltaGas

AltaGas' Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. The last payment was quite easily covered by earnings, but it made up 295% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 15.2%. If the dividend continues on this path, the payout ratio could be 50% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. 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.

The Dividend Looks Likely To Grow

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. AltaGas has impressed us by growing EPS at 30% per year over the past five years. AltaGas is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On AltaGas' Dividend

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. While AltaGas is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for AltaGas you should be aware of, and 1 of them makes us a bit uncomfortable. We have also put together a list of global stocks with a solid dividend.

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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