The board of directors of the water utility Aqua America Inc. (WTR) approved an increase in the quarterly dividend rate by 1.5 cents or 9%. The revised quarterly dividend of 19 cents will be payable on Sep 1, 2013, to shareholders of record at the close of business on Aug 16, 2013.
The revised annualized dividend rate comes to 76 cents, with an annual dividend yield of 2.4%. The increase in distributable income speaks of the company’s successfully executed investment growth strategy.
Previously, the company raised the quarterly dividend rate by 6.1% to 17.5 cents. Aqua America aims at a dividend payout ratio in the range of 60% to 70%. The dividend increases would help the company achieve the payout target.
In addition to increasing the quarterly dividend rate, the board of Aqua America also approved a 5-for-4 stock split. Aqua America Inc.’s share price moved up 45.3% in the last twelve months, closing at $31.80 at the end of the trading session on May 9, 2013. The stock split will be effective from Sep 1, 2013 and we believe it will allow more investors to invest in this water utility.
Aqua America’s cash flow from operating activities at the end of the first quarter of 2013 was $88.9 million versus $77.9 million in the comparable period last year. In the first quarter the company utilized $24.5 million for dividend payouts. The consistent cash flow generation will enable the company to meet its increased dividend payment obligation.
Besides Aqua America Inc., a few other water utility operators have also raised their quarterly dividend rates in recent months. While Artesian Resources Corporation (ARTNA) raised its quarterly dividend rate by 1.5%, American Water Works Company, Inc. (AWK) raised its quarterly dividend rate by 12%.
Aqua America currently has a Zacks Rank #3 (Hold) and is distributing dividends for more than six decades. We prefer another water utility American States Water Company (AWR) presently holding a Zacks Rank #1(Strong Buy). AWR too has a history of paying dividends for six long decades with the current quarterly rate at 35.5 cents.
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