Only Four Days Left To Cash In On Canadian Utilities' (TSE:CU) Dividend
Canadian Utilities Limited (TSE:CU) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Canadian Utilities' shares before the 1st of February to receive the dividend, which will be paid on the 1st of March.
The company's next dividend payment will be CA$0.45 per share. Last year, in total, the company distributed CA$1.78 to shareholders. Based on the last year's worth of payments, Canadian Utilities stock has a trailing yield of around 4.8% on the current share price of CA$37.36. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Canadian Utilities has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Canadian Utilities
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 81% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 68% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Canadian Utilities's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Canadian Utilities's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A payout ratio of 81% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Canadian Utilities has lifted its dividend by approximately 7.3% a year on average.
From a dividend perspective, should investors buy or avoid Canadian Utilities? Earnings per share have barely grown, and although Canadian Utilities paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
However if you're still interested in Canadian Utilities as a potential investment, you should definitely consider some of the risks involved with Canadian Utilities. For example, we've found 2 warning signs for Canadian Utilities (1 can't be ignored!) that deserve your attention before investing in the shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.
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