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

Caribbean Utilities Company, Ltd. (TSE:CUP.U) will pay a dividend of $0.18 on the 15th of December. This means the annual payment is 6.3% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Caribbean Utilities Company

Caribbean Utilities Company's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. 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.

Over the next year, EPS is forecast to expand by 12.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 65%, which is in the range that makes us comfortable with the sustainability of the dividend.

Caribbean Utilities Company Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 6 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from an annual total of $0.68 in 2017 to the most recent total annual payment of $0.72. 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.

We Could See Caribbean Utilities Company's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Caribbean Utilities Company has grown earnings per share at 6.7% 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.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Caribbean Utilities Company's payments, as there could be some issues with sustaining them into the future. While Caribbean Utilities Company is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Caribbean Utilities Company (1 is potentially serious!) that you should be aware of before investing. 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.