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The board of Middlesex Water Company (NASDAQ:MSEX) has announced that the dividend on 2nd of December will be increased to $0.34, which will be 4.6% higher than last year's payment of $0.325 which covered the same period. Even though the dividend went up, the yield is still quite low at only 2.0%.
See our latest analysis for Middlesex Water
Middlesex Water's Projected Earnings Seem Likely To Cover Future Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Middlesex Water was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
If the trend of the last few years continues, EPS will grow by 0.09% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 67%, which is in the range that makes us comfortable with the sustainability of the dividend.
Middlesex Water Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.76 in 2014 to the most recent total annual payment of $1.30. This works out to be a compound annual growth rate (CAGR) of approximately 5.5% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Dividend Growth May Be Hard To Achieve
The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately, Middlesex Water'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 0.09% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.
Our Thoughts On Middlesex Water's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. Case in point: We've spotted 2 warning signs for Middlesex Water (of which 1 is significant!) 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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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.