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Is Unitil (UTL) a Great Dividend Play?

Zacks Equity Research
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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Unitil in Focus

Headquartered in Hampton, Unitil (UTL) is a Utilities stock that has seen a price change of 9.75% so far this year. The utility is currently shelling out a dividend of $0.37 per share, with a dividend yield of 2.92%. This compares to the Utility - Electric Power industry's yield of 3.29% and the S&P 500's yield of 1.83%.

Looking at dividend growth, the company's current annualized dividend of $1.46 is up 1.4% from last year. Unitil has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 1.30%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Unitil's current payout ratio is 65%, meaning it paid out 65% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for UTL for this fiscal year. The Zacks Consensus Estimate for 2018 is $2.22 per share, with earnings expected to increase 7.77% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that UTL is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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