AltaGas (TSE:ALA) Is Increasing Its Dividend To CA$0.28

AltaGas Ltd.'s (TSE:ALA) dividend will be increasing from last year's payment of the same period to CA$0.28 on 31st of March. This makes the dividend yield about the same as the industry average at 4.5%.

View 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. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Earnings per share is forecast to rise by 77.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 77%, which is on the higher side, but certainly still feasible.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of CA$1.38 in 2013 to the most recent total annual payment of CA$1.12. The dividend has shrunk at around 2.1% a year during that period. 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.

There Isn't Much Room To Grow The Dividend

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 7.5% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

AltaGas' Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think AltaGas is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for AltaGas (2 shouldn't be ignored!) that you should be aware of before investing. 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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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.