American States Water's (NYSE:AWR) Shareholders Will Receive A Bigger Dividend Than Last Year
American States Water Company (NYSE:AWR) has announced that it will be increasing its periodic dividend on the 1st of September to $0.43, which will be 8.2% higher than last year's comparable payment amount of $0.398. This makes the dividend yield about the same as the industry average at 1.8%.
Check out our latest analysis for American States Water
American States Water's Earnings Easily Cover The Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, American States Water'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 24.7%. If the dividend continues on this path, the payout ratio could be 53% by next year, which we think can be pretty sustainable going forward.
American States Water Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.71 in 2013 to the most recent total annual payment of $1.59. This means that it has been growing its distributions at 8.4% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Has Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that American States Water has been growing its earnings per share at 7.8% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
In Summary
Overall, we always like to see the dividend being raised, but we don't think American States Water will make a great income stock. While American States Water is earning enough to cover the payments, the cash flows are lacking. We don't think American States Water is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, American States Water has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is American States Water not quite the opportunity you were looking for? Why not check out our selection of top 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.
