Caribbean Utilities Company (TSE:CUP.U) Has Announced That It Will Be Increasing Its Dividend To $0.18

Caribbean Utilities Company, Ltd. (TSE:CUP.U) will increase its dividend on the 15th of June to $0.18, which is 2.9% higher than last year's payment from the same period of $0.175. This will take the dividend yield to an attractive 5.1%, providing a nice boost to shareholder returns.

Check out our latest analysis for Caribbean Utilities Company

Caribbean Utilities Company's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Caribbean Utilities Company's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Earnings per share is forecast to rise by 5.2% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 80% which is a bit high but can definitely be sustainable.

Caribbean Utilities Company Doesn't Have A Long Payment History

It is great to see that Caribbean Utilities Company has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2018, the dividend has gone from $0.68 total annually to $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.

Caribbean Utilities Company Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Caribbean Utilities Company has impressed us by growing EPS at 5.8% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Caribbean Utilities Company is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Caribbean Utilities Company you should be aware of, and 1 of them is a bit concerning. Is Caribbean Utilities Company not quite the opportunity you were looking for? Why not check out our selection of top 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.