ALLETE (NYSE:ALE) Will Pay A Larger Dividend Than Last Year At $0.705

ALLETE, Inc. (NYSE:ALE) will increase its dividend on the 1st of March to $0.705, which is 4.1% higher than last year's payment from the same period of $0.678. This will take the annual payment to 4.6% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for ALLETE

ALLETE's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by ALLETE's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 7.1% over the next year. If the dividend continues on this path, the payout ratio could be 62% by next year, which we think can be pretty sustainable going forward.

ALLETE Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the annual payment back then was $1.90, compared to the most recent full-year payment of $2.71. This means that it has been growing its distributions at 3.6% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that ALLETE has been growing its earnings per share at 7.4% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

We Really Like ALLETE's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for ALLETE (of which 1 makes us a bit uncomfortable!) you should know about. Is ALLETE not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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