AltaGas Ltd. (TSE:ALA) has announced that it will be increasing its periodic dividend on the 29th of March to CA$0.2975, which will be 6.2% higher than last year's comparable payment amount of CA$0.28. This takes the annual payment to 4.0% of the current stock price, which is about average for the industry.
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. Before making this announcement, AltaGas was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Looking forward, earnings per share is forecast to rise by 9.8% over the next year. 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. Since 2014, the dividend has gone from CA$1.44 total annually to CA$1.12. The dividend has shrunk at around 2.5% 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.
The Dividend Looks Likely To Grow
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. It's encouraging to see that AltaGas has been growing its earnings per share at 22% a 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
Overall, we always like to see the dividend being raised, but we don't think AltaGas will make a great income stock. While AltaGas is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 5 warning signs for AltaGas (of which 1 is concerning!) 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.
If you're looking to trade AltaGas, open an account with the lowest-cost platform trusted by professionals, Interactive Brokers.
With clients in over 200 countries and territories, and access to 160 markets, IBKR lets you trade stocks, options, futures, forex, bonds and funds from a single integrated account.
Enjoy no hidden fees, no account minimums, and FX conversion rates as low as 0.03%, far better than what most brokers offer.
Sponsored ContentNew: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About TSX:ALA
Fair value low.
