Emera's (TSE:EMA) Dividend Will Be Increased To CA$0.725

The board of Emera Incorporated (TSE:EMA) has announced that it will be increasing its dividend by 1.0% on the 15th of November to CA$0.725, up from last year's comparable payment of CA$0.718. This takes the dividend yield to 5.7%, which shareholders will be pleased with.

View our latest analysis for Emera

Emera's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the dividend made up 110% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

EPS is set to grow by 34.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 91%, which is on the higher side, but certainly still feasible.

Emera Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was CA$1.45 in 2014, and the most recent fiscal year payment was CA$2.87. This implies that the company grew its distributions at a yearly rate of about 7.1% over that duration. 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 Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that Emera's earnings per share has fallen at approximately 5.1% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Emera's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Emera will make a great income stock. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Emera (of which 2 make us uncomfortable!) you should know about. Is Emera not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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