Don't Buy Laurentian Bank of Canada (TSE:LB) For Its Next Dividend Without Doing These Checks
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Laurentian Bank of Canada (TSE:LB) is about to go ex-dividend in just four days. You will need to purchase shares before the 30th of September to receive the dividend, which will be paid on the 1st of November.
Laurentian Bank of Canada's next dividend payment will be CA$0.40 per share, and in the last 12 months, the company paid a total of CA$1.60 per share. Looking at the last 12 months of distributions, Laurentian Bank of Canada has a trailing yield of approximately 5.8% on its current stock price of CA$27.46. 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! So we need to investigate whether Laurentian Bank of Canada can afford its dividend, and if the dividend could grow.
Check out 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 97% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Laurentian Bank of Canada's earnings per share have fallen at approximately 11% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Laurentian Bank of Canada has lifted its dividend by approximately 1.1% a year on average.
Final Takeaway
From a dividend perspective, should investors buy or avoid Laurentian Bank of Canada? Not only are earnings per share shrinking, but Laurentian Bank of Canada is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. 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. Every company has risks, and we've spotted 2 warning signs for Laurentian Bank of Canada you should know about.
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.
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. 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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