The York Water Company's (NASDAQ:YORW) dividend will be increasing from last year's payment of the same period to $0.2027 on 16th of October. Based on this payment, the dividend yield for the company will be 2.0%, which is fairly typical for the industry.
York Water's Dividend Is Well Covered By Earnings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, York Water's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
The next year is set to see EPS grow by 5.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which is in the range that makes us comfortable with the sustainability of the dividend.
York Water Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.534 in 2013, and the most recent fiscal year payment was $0.811. This means that it has been growing its distributions at 4.3% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
We Could See York Water's Dividend Growing
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. York Water has seen EPS rising for the last five years, at 7.0% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
Our Thoughts On York Water's Dividend
In summary, while it's always good to see the dividend being raised, we don't think York Water's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think York Water is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for York Water (of which 1 is a bit concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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