Laurentian Bank of Canada (TSE:LB) has announced that it will pay a dividend of CA$0.47 per share on the 1st of August. The dividend yield will be 7.4% based on this payment which is still above the industry average.

View our latest analysis for Laurentian Bank of Canada

Laurentian Bank of Canada's Payment Expected To Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Laurentian Bank of Canada has a long history of paying out dividends, with its current track record at a minimum of 10 years. Despite this history however, the company's latest earnings report actually shows that it didn't have enough earnings to cover its dividends. This is an alarming sign that could mean that Laurentian Bank of Canada's dividend at its current rate may no longer be sustainable for longer.

Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. In addtion, they also estimate the future payout ratio could reach 49% in the same time period, which we would be comfortable to see continuing.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CA$2.00 in 2014, and the most recent fiscal year payment was CA$1.88. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Laurentian Bank of Canada's EPS has declined at around 3.2% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Laurentian Bank of Canada's Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.