Canadian Utilities' (TSE:CU) Shareholders Will Receive A Bigger Dividend Than Last Year

Canadian Utilities Limited (TSE:CU) has announced that it will be increasing its periodic dividend on the 1st of March to CA$0.4577, which will be 1.0% higher than last year's comparable payment amount of CA$0.453. This takes the annual payment to 5.3% of the current stock price, which is about average for the industry.

See our latest analysis for Canadian Utilities

Canadian Utilities' Future Dividends May Potentially Be At Risk

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

EPS is set to fall by 15.5% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 145%, which could put the dividend under pressure if earnings don't start to improve.

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. Since 2015, the annual payment back then was CA$1.07, compared to the most recent full-year payment of CA$1.81. This means that it has been growing its distributions at 5.4% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Canadian Utilities' earnings per share has shrunk at 16% a year over 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.

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. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for Canadian Utilities that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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