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The board of Canadian Utilities Limited (TSE:CU) has announced that it will pay a dividend on the 1st of December, with investors receiving CA$0.4531 per share. This means that the annual payment will be 4.9% of the current stock price, which is in line with the average for the industry.
View our latest analysis for Canadian Utilities
Estimates Indicate Canadian Utilities' Could Struggle to Maintain Dividend Payments In The Future
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. At the time of the last dividend payment, Canadian Utilities was paying out a very large proportion of what it was earning and 97% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
If the company can't turn things around, EPS could fall by 9.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 108%, which could put the dividend in jeopardy if the company's earnings don't improve.
Canadian Utilities Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from CA$0.97 total annually to CA$1.81. This implies that the company grew its distributions at a yearly rate of about 6.5% over that duration. 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. Unfortunately things aren't as good as they seem. In the last five years, Canadian Utilities' earnings per share has shrunk at approximately 9.9% per annum. 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. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Canadian Utilities that you should be aware of before investing. 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.