The board of Unitil Corporation (NYSE:UTL) has announced that the dividend on 28th of February will be increased to $0.405, which will be 3.8% higher than last year's payment of $0.39 which covered the same period. The payment will take the dividend yield to 3.1%, which is in line with the average for the industry.
Check out our latest analysis for Unitil
Unitil's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Unitil's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
The next year is set to see EPS grow by 16.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which is in the range that makes us comfortable with the sustainability of the dividend.
Unitil Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $1.38 in 2013, and the most recent fiscal year payment was $1.56. This works out to be a compound annual growth rate (CAGR) of approximately 1.2% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
We Could See Unitil's Dividend Growing
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Unitil has grown earnings per share at 5.3% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
Our Thoughts On Unitil's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Unitil's payments are rock solid. While Unitil is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Unitil you should be aware of, and 1 of them is a bit concerning. 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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