Caribbean Utilities Company (TSE:CUP.U) Is Due To Pay A Dividend Of $0.18

Caribbean Utilities Company, Ltd. (TSE:CUP.U) has announced that it will pay a dividend of $0.18 per share on the 15th of September. This means the dividend yield will be fairly typical at 5.6%.

See our latest analysis for Caribbean Utilities Company

Caribbean Utilities Company's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. 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. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Earnings per share is forecast to rise by 4.6% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 77% 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 $0.72. This means that it has been growing its distributions at 1.1% per annum over that time. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

We Could See Caribbean Utilities Company's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Caribbean Utilities Company has grown earnings per share at 5.9% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 is a bit unpleasant!) 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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