Canadian Utilities (TSE:CU) Will Pay A 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 September. This makes the dividend yield 5.9%, which will augment investor returns quite nicely.

See 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 127% 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 fall by 0.8% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 90%, which is definitely on the higher side.

Canadian Utilities Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of CA$0.97 in 2014 to the most recent total annual payment of CA$1.81. This implies that the company grew its distributions at a yearly rate of about 6.5% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. However, Canadian Utilities' EPS was effectively flat over the past five years, which could stop the company from paying more every year.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Canadian Utilities' payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. 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. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Canadian Utilities you should be aware of, and 2 of them are concerning. 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.

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