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KeyCorp's (NYSE:KEY) investors are due to receive a payment of $0.205 per share on 13th of June. This means the annual payment is 4.9% of the current stock price, which is above the average for the industry.
KeyCorp's Dividend Forecasted To Be Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.
KeyCorp has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and KeyCorp's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign that could mean that KeyCorp's dividend at its current rate may no longer be sustainable for longer.
Over the next 3 years, EPS is forecast to expand by 186.0%. The future payout ratio could be 47% over that time period, according to analyst estimates, which is a good look for the future of the dividend.
Check out our latest analysis for KeyCorp
KeyCorp Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was $0.26, compared to the most recent full-year payment of $0.82. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. KeyCorp's earnings per share has shrunk at 23% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
We should note that KeyCorp has issued stock equal to 16% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.