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The board of Global Water Resources, Inc. (NASDAQ:GWRS) has announced that it will pay a dividend of $0.0183 per share on the 31st of January. This payment means that the dividend yield will be 2.2%, which is around the industry average.
See our latest analysis for Global Water Resources
Global Water Resources Doesn't Earn Enough To Cover Its Payments
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before this announcement, Global Water Resources was paying out 133% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.
The next 12 months is set to see EPS grow by 16.8%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 96%, which probably can't continue without putting some pressure on the balance sheet.
Global Water Resources Is Still Building Its Track Record
Global Water Resources' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2017, the dividend has gone from $0.28 total annually to $0.298. This works out to be a compound annual growth rate (CAGR) of approximately 1.0% a year over that time. Global Water Resources 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 Could Be Constrained
Investors could be attracted to the stock based on the quality of its payment history. Global Water Resources has seen EPS rising for the last five years, at 17% per annum. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Global Water Resources' payments, as there could be some issues with sustaining them into the future. Strong earnings growth means Global Water Resources has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Global Water Resources 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Global Water Resources (2 make us uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.