Readers hoping to buy Laurentian Bank of Canada (TSE:LB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 31st of March will not receive this dividend, which will be paid on the 1st of May.
Laurentian Bank of Canada’s upcoming dividend is CA$0.67 a share, following on from the last 12 months, when the company distributed a total of CA$2.68 per share to shareholders. Based on the last year’s worth of payments, Laurentian Bank of Canada has a trailing yield of 8.5% on the current stock price of CA$31.5. If you buy this business for its dividend, you should have an idea of whether Laurentian Bank of Canada’s dividend is reliable and sustainable. As a result, readers should always check whether Laurentian Bank of Canada has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Laurentian Bank of Canada
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Laurentian Bank of Canada paid out more than half (74%) of its earnings last year, which is a regular payout ratio for most companies.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
TSX:LB Historical Dividend Yield March 26th 2020
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why it’s not ideal to see Laurentian Bank of Canada’s earnings per share have been shrinking at 4.5% a year over the previous five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the past ten years, Laurentian Bank of Canada has increased its dividend at approximately 7.0% a year on average. That’s interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company’s profits. This can be valuable for shareholders, but it can’t go on forever.
To Sum It Up
Should investors buy Laurentian Bank of Canada for the upcoming dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. These characteristics don’t generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
So if you’re still interested in Laurentian Bank of Canada despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. Case in point: We’ve spotted 1 warning sign for Laurentian Bank of Canada you should be aware of.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.