The York Water Company's (NASDAQ:YORW) dividend will be increasing to US$0.19 on 15th of July. This takes the annual payment to 1.9% of the current stock price, which is about average for the industry.
York Water's Earnings Easily Cover the Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. 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. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Looking forward, earnings per share is forecast to rise by 2.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 65%, 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 dividend has gone from US$0.52 in 2012 to the most recent annual payment of US$0.78. This means that it has been growing its distributions at 4.1% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
York Water Could Grow Its Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that York Water has grown earnings per share at 5.3% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the 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 redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for York Water (of which 1 is significant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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