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Canadian Utilities' (TSE:CU) Upcoming Dividend Will Be Larger Than Last Year's

The board of Canadian Utilities Limited (TSE:CU) has announced that it will be increasing its dividend by 1.0% on the 1st of March to CA$0.4486, up from last year's comparable payment of CA$0.444. This will take the annual payment to 4.7% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Canadian Utilities

Canadian Utilities' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment made up 81% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

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EPS is set to grow by 5.2% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 83% - on the higher side, but we wouldn't necessarily say this is unsustainable.

historic-dividend
historic-dividend

Canadian Utilities Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of CA$0.885 in 2013 to the most recent total annual payment of CA$1.78. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately, Canadian Utilities' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Canadian Utilities' Dividend

Overall, we always like to see the dividend being raised, but we don't think Canadian Utilities will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Canadian Utilities is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Canadian Utilities you should be aware of, and 1 of them shouldn't be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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