AltaGas Ltd.'s (TSE:ALA) dividend will be increasing from last year's payment of the same period to CA$0.315 on 31st of March. Based on this payment, the dividend yield for the company will be 3.8%, which is fairly typical for the industry.
See our latest analysis for AltaGas
AltaGas' Projected Earnings Seem Likely To Cover Future Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. This is a pretty unsustainable practice, and could be risky if continued for the long term.
Over the next year, EPS is forecast to expand by 61.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 42% by next year, which is in a pretty sustainable range.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from CA$1.53 total annually to CA$1.26. This works out to be a decline of approximately 1.9% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth Potential Is Shaky
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. AltaGas' EPS has fallen by approximately 15% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
The Dividend Could Prove To Be Unreliable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While AltaGas is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs (and 1 which is potentially serious) 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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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
Good value with limited growth.
