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Caribbean Utilities Company (TSE:CUP.U) Has Announced A Dividend Of $0.175

·3-min read

Caribbean Utilities Company, Ltd.'s (TSE:CUP.U) investors are due to receive a payment of $0.175 per share on 15th of September. Based on this payment, the dividend yield on the company's stock will be 4.7%, which is an attractive boost to shareholder returns.

View our latest analysis for Caribbean Utilities Company

Caribbean Utilities Company's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Caribbean Utilities Company was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.

Earnings per share is forecast to rise by 6.0% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 80% - on the higher side, but we wouldn't necessarily say this is unsustainable.

historic-dividend
historic-dividend

Caribbean Utilities Company Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of $0.68 in 2018 to the most recent total annual payment of $0.70. Dividend payments have been growing, but very slowly over the period. Caribbean Utilities Company hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 4.0% per year. Caribbean Utilities Company's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. Case in point: We've spotted 2 warning signs for Caribbean Utilities Company (of which 1 shouldn't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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