DT Midstream, Inc. (NYSE:DTM) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of April to $0.82. Despite this raise, the dividend yield of 3.4% is only a modest boost to shareholder returns.

Check out our latest analysis for DT Midstream

DT Midstream's Projected Earnings Seem Likely To Cover Future Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, DT Midstream's was paying out quite a large proportion of earnings and 80% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

The next year is set to see EPS grow by 50.6%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 71% which brings it into quite a comfortable range.NYSE:DTM Historic Dividend March 15th 2025

DT Midstream Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2021, the annual payment back then was $2.40, compared to the most recent full-year payment of $3.28. This means that it has been growing its distributions at 8.1% per annum over that time. DT Midstream has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

DT Midstream Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. DT Midstream has impressed us by growing EPS at 11% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On DT Midstream's Dividend

In summary, while it's always good to see the dividend being raised, we don't think DT Midstream's payments are rock solid. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would probably look elsewhere for an income investment.

Story Continues

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for DT Midstream that investors need to be conscious of moving forward. 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.

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