Chesapeake Utilities' (NYSE:CPK) Shareholders Will Receive A Bigger Dividend Than Last Year
The board of Chesapeake Utilities Corporation (NYSE:CPK) has announced that the dividend on 5th of July will be increased to $0.59, which will be 10% higher than last year's payment of $0.535 which covered the same period. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.
See our latest analysis for Chesapeake Utilities
Chesapeake Utilities' Payment Has Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. The last payment was quite easily covered by earnings, but it made up 124% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
The next year is set to see EPS grow by 25.8%. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.
Chesapeake Utilities 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 $0.973 in 2013 to the most recent total annual payment of $2.14. This works out to be a compound annual growth rate (CAGR) of approximately 8.2% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Chesapeake Utilities May Find It Hard To Grow The Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 4.5% per annum over the last five years, which admittedly is a bit slow. Growth of 4.5% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
Our Thoughts On Chesapeake Utilities' Dividend
In summary, while it's always good to see the dividend being raised, we don't think Chesapeake Utilities' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Chesapeake Utilities that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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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