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

Caribbean Utilities Company, Ltd.'s (TSE:CUP.U) investors are due to receive a payment of $0.18 per share on 15th of March. This means the annual payment is 6.4% 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

A big dividend yield for a few years doesn't mean much if it can't be sustained. 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 12.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which is in the range that makes us comfortable with the sustainability of the dividend.

Caribbean Utilities Company Is Still Building Its Track Record

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 2018 to the most recent total annual payment of $0.72. Its dividends have grown at less than 1% per annum over this time frame. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

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 6.6% 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

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Caribbean Utilities Company is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Caribbean Utilities Company (1 doesn't sit too well with us!) 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.