Canadian Utilities (TSE:CU) Is Paying Out A Dividend Of CA$0.4442

Canadian Utilities Limited's (TSE:CU) investors are due to receive a payment of CA$0.4442 per share on 1st of September. Based on this payment, the dividend yield will be 4.5%, which is fairly typical for the industry.

See our latest analysis for Canadian Utilities

Canadian Utilities Doesn't Earn Enough To Cover Its Payments

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 115% of what it was earning and 82% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Looking forward, EPS could fall by 6.9% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 132%, which could put the dividend under pressure if earnings don't start to improve.

Canadian Utilities Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was CA$0.805, compared to the most recent full-year payment of CA$1.78. This means that it has been growing its distributions at 8.2% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Canadian Utilities has seen earnings per share falling at 6.9% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

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 don't think Canadian Utilities is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Canadian Utilities has 3 warning signs (and 1 which is concerning) 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.