Caribbean Utilities Company (TSE:CUP.U) Will Pay A Dividend Of $0.18
The board of Caribbean Utilities Company, Ltd. (TSE:CUP.U) has announced that it will pay a dividend on the 15th of December, with investors receiving $0.18 per share. This means the annual payment is 6.3% of the current stock price, which is above the average for the industry.
View our latest analysis for Caribbean Utilities Company
Caribbean Utilities Company's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. We think that this practice can make the dividend quite risky in the future.
Looking forward, earnings per share is forecast to rise by 12.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 65% by next year, which is in a pretty sustainable range.
Caribbean Utilities Company Is Still Building Its Track Record
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2017, the dividend has gone from $0.68 total annually to $0.72. Its dividends have grown at less than 1% per annum over this time frame. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
The Dividend Has Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Caribbean Utilities Company has seen EPS rising for the last five years, at 6.7% per annum. 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 Caribbean Utilities Company's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Caribbean Utilities Company 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Caribbean Utilities Company has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Caribbean Utilities Company 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.
