Royal Bank of Canada (TSE:RY) will increase its dividend on the 24th of August to CA$1.28. Based on the announced payment, the dividend yield for the company will be 3.8%, which is fairly typical for the industry.
Royal Bank of Canada's Dividend Is Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Royal Bank of Canada was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Over the next year, EPS is forecast to fall by 0.9%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 44%, which is comfortable for the company to continue in the future.
Royal Bank of Canada Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from CA$2.16 in 2012 to the most recent annual payment of CA$5.12. This works out to be a compound annual growth rate (CAGR) of approximately 9.0% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Has Growth Potential
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Royal Bank of Canada has seen EPS rising for the last five years, at 9.5% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Our Thoughts On Royal Bank of Canada's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 11 analysts we track are forecasting for Royal Bank of Canada for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated 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.