AltaGas Ltd.'s (TSE:ALA) periodic dividend will be increasing on the 29th of March to CA$0.2975, with investors receiving 6.2% more than last year's CA$0.28. This makes the dividend yield about the same as the industry average at 4.1%.

Check out our latest analysis for AltaGas

AltaGas' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, AltaGas' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 21.7% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend. historic-dividend

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was CA$1.44 in 2014, and the most recent fiscal year payment was CA$1.12. Doing the maths, this is a decline of about 2.5% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. AltaGas has seen EPS rising for the last five years, at 22% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While AltaGas is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 5 warning signs for AltaGas you should be aware of, and 1 of them is potentially serious. Is AltaGas not quite the opportunity you were looking for? Why not check out our selection of top 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.