Caribbean Utilities Company (TSE:CUP.U) Has Affirmed Its Dividend Of $0.175

Caribbean Utilities Company, Ltd. (TSE:CUP.U) will pay a dividend of $0.175 on the 15th of March. Based on this payment, the dividend yield on the company's stock will be 5.0%, 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

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. We think that this practice can make the dividend quite risky in the future.

The next year is set to see EPS grow by 22.5%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 67% which brings it into quite a comfortable range.

Caribbean Utilities Company Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. 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. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings has been rising at 4.2% per annum over the last five years, which admittedly is a bit slow. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Caribbean Utilities Company's Dividend Doesn't Look Sustainable

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 payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Caribbean Utilities Company you should be aware of, and 1 of them can't be ignored. 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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