wateroperator wrote: AltaGas is a diversified energy infrastructure company that is headquartered in Calgary. The company has three business segments: gas, power, and utilities. Its gas segment is involved in natural gas gathering and processing as well as natural gas liquid (NGL) extraction and fractionation, storage, transmission, and the marketing of natural gas and NGL.
AltaGas’s power segment supplies energy generated from natural gas, hydro, wind, and biomass. The company’s utility segment provides natural gas to homes and businesses across North America.
AltaGas’s 2017 revenue came in at $2.6 billion, while net income was $91.6 million. For the second quarter of 2018, the company reported revenue of $609.8 million and a net income of $17.8 million. The company has a strong dividend history; it has increased dividend payments every year since 2011.
The company’s trailing 12-month dividend-payout ratio is very high at 675%. Payout ratios for the 2017, 2016, and 2015 financial years were also well over 100%. These consistently high payout ratios immediately raise red flags and suggest that AltaGas’s dividend payments may not be sustainable.
Before we make our conclusions, let’s take a look at the free cash flow payout ratio (defined as dividend/free cash flow, and expressed as %), as this is often a better indication of dividend sustainability. For the last 12 months, this ratio is 630%, while it was over 800% for financial year 2017. This analysis indicates that AltaGas’s current free cash flow is not nearly enough to pay its dividend.