Caribbean Utilities Company's (TSE:CUP.U) Dividend Will Be $0.185

Caribbean Utilities Company, Ltd. (TSE:CUP.U) will pay a dividend of $0.185 on the 14th of March. This means the annual payment is 5.6% of the current stock price, which is above the average for the industry.

View our latest analysis for Caribbean Utilities Company

Caribbean Utilities Company's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Caribbean Utilities Company was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 4.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 72%, which is in the range that makes us comfortable with the sustainability of the dividend.

Caribbean Utilities Company Is Still Building Its Track Record

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. Since 2018, the dividend has gone from $0.68 total annually to $0.74. This means that it has been growing its distributions at 1.2% per annum over that time. Caribbean Utilities Company hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 3.2% per annum over the last five years, which admittedly is a bit slow. The company has been growing at a pretty soft 3.2% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

We should note that Caribbean Utilities Company has issued stock equal to 11% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

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 the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Caribbean Utilities Company (1 is a bit concerning!) 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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