Over the past 10 years Aqua America Inc (NYSE:WTR) has been paying dividends to shareholders. The company currently pays out a dividend yield of 2.7% to shareholders, making it a relatively attractive dividend stock. Let’s dig deeper into whether Aqua America should have a place in your portfolio.
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How well does Aqua America fit our criteria?
The company currently pays out 59% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 62%, leading to a dividend yield of around 2.8%. Furthermore, EPS should increase to $1.44.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of WTR it has increased its DPS from $0.43 to $0.88 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes WTR a true dividend rockstar.
In terms of its peers, Aqua America generates a yield of 2.7%, which is high for Water Utilities stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, Aqua America is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for WTR’s future growth? Take a look at our free research report of analyst consensus for WTR’s outlook.
- Historical Performance: What has WTR’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.