The board of Atlas Corp. (NYSE:ATCO) has announced that it will pay a dividend of US$0.13 per share on the 1st of November. Including this payment, the dividend yield on the stock will be 3.5%, which is a modest boost for shareholders' returns.
Atlas' Dividend Is Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Atlas' dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.
Over the next year, EPS is forecast to expand by 108.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Atlas 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 last annual payment of US$0.50 was flat on the first annual payment 10 years ago. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
Dividend Growth May Be Hard To Come By
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Atlas' EPS has declined at around 6.5% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. 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.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Atlas' payments, as there could be some issues with sustaining them into the future. 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. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for Atlas that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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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