California Water Service Group (NYSE:CWT) has announced that it will be increasing its periodic dividend on the 17th of February to $0.26, which will be 4.0% higher than last year's comparable payment amount of $0.25. This takes the annual payment to 1.6% of the current stock price, which is about average for the industry.
See our latest analysis for California Water Service Group
California Water Service Group's Earnings Easily Cover The Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, California Water Service Group was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 51.0%. If the dividend continues on this path, the payout ratio could be 49% by next year, which we think can be pretty sustainable going forward.
California Water Service Group Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.63 in 2013 to the most recent total annual payment of $1.00. This implies that the company grew its distributions at a yearly rate of about 4.7% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
California Water Service Group May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately, California Water Service Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The company has been growing at a pretty soft 0.4% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
Overall, we always like to see the dividend being raised, but we don't think California Water Service Group will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 5 warning signs for California Water Service Group (1 is potentially serious!) that you should be aware of before investing. 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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