Canadian Utilities (TSE:CU) Has Affirmed Its Dividend Of CA$0.4531

The board of Canadian Utilities Limited (TSE:CU) has announced that it will pay a dividend of CA$0.4531 per share on the 1st of June. Based on this payment, the dividend yield on the company's stock will be 6.0%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Canadian Utilities

Canadian Utilities' Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Canadian Utilities' dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 111% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

EPS is set to grow by 4.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 79%, which is on the higher side, but certainly still feasible.

Canadian Utilities Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was CA$0.97 in 2014, and the most recent fiscal year payment was CA$1.81. This means that it has been growing its distributions at 6.5% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Canadian Utilities May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Earnings per share has been crawling upwards at 2.1% per year. Slow growth and a high payout ratio could mean that Canadian Utilities has maxed out the amount that it has been able to pay to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Canadian Utilities' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.

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. Just as an example, we've come across 2 warning signs for Canadian Utilities you should be aware of, and 1 of them can't be ignored. Is Canadian Utilities not quite the opportunity you were looking for? Why not check out our selection of top 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.