Canadian Utilities (TSE:CU) Is Increasing Its Dividend To CA$0.4486

Canadian Utilities Limited's (TSE:CU) periodic dividend will be increasing on the 1st of March to CA$0.4486, with investors receiving 1.0% more than last year's CA$0.444. This will take the dividend yield to an attractive 4.7%, providing a nice boost to shareholder returns.

See our latest analysis for Canadian Utilities

Canadian Utilities' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment made up 81% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

Earnings per share is forecast to rise by 5.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.

Canadian Utilities Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was CA$0.885 in 2013, and the most recent fiscal year payment was CA$1.78. This means that it has been growing its distributions at 7.2% 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. Although it's important to note that Canadian Utilities' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Canadian Utilities' earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings 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.

Our Thoughts On Canadian Utilities' Dividend

Overall, we always like to see the dividend being raised, but we don't think Canadian Utilities will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Canadian Utilities (1 is potentially serious!) that you should be aware of before investing. 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.