TELUS Company (TSE:T) dividend will increase to C$0.34 on July 4. The announced payout will bring the dividend yield to 4.1%, which is in line with the industry average.

Check out our latest analysis for TELUS

TELUS does not earn enough to cover its payments

We like a dividend to be consistent over the long term, so it’s important to check if it’s sustainable. Prior to this announcement, TELUS was paying out 103% of what it earned and was also not generating free cash flow. Paying out such a large dividend relative to earnings without generating free cash flow is a major warning sign for dividend sustainability, as these levels are certainly a bit high.

Over the next year, EPS is expected to fall 4.8%. If the dividend continues on the path it’s been on recently, the 12-month payout rate could be 119%, which is certainly a bit high to be sustainable going forward.

TELUS has a strong track record

The company has been paying a dividend for a long time and it is quite stable, which gives us confidence in the future dividend potential. Since 2012, the first annual payment was CA$0.55, compared to the most recent annual payment of CA$1.35. This implies that the company has increased its distributions at an annual rate of approximately 9.4% over this period. The dividend has increased very well for several years and has provided its shareholders with good income in their portfolios.

Dividend growth prospects are limited

Some investors will be eager to buy some of the company’s stock based on its dividend history. Revenues have grown 3.1% annually over the past five years, which admittedly is a little slow. Earnings growth is anemic and the company pays out 103% of its profits. As they say in finance, “Past performance is not indicative of future performance”, but we’re not convinced that a company with limited earnings growth and a high payout ratio will be a star dividend payer over the course of the year. of the next decade.

Dividend could prove unreliable

Overall, it’s probably not a great income stock, even though the dividend is being increased right now. We can’t deny that the payouts have been very stable, but we’re a bit worried about the very high payout rate. We would be a bit cautious to rely on this stock primarily for dividend income.

Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. However, there are other things for investors to consider when analyzing stock performance. To this end, TELUS has 3 warning signs (and 1 that shouldn’t be ignored) that we think you should know about. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.