United Utilities Group (LON:UU.) Will Pay A Dividend Of £0.1659

United Utilities Group PLC's (LON:UU.) investors are due to receive a payment of £0.1659 per share on 1st of February. This takes the annual payment to 4.3% of the current stock price, which is about average for the industry.

View our latest analysis for United Utilities Group

United Utilities Group Doesn't Earn Enough To Cover Its Payments

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. United Utilities Group is unprofitable despite paying a dividend, and it is paying out 703% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.

Earnings per share is forecast to rise by 160.9% over the next year. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

United Utilities Group Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was £0.343, compared to the most recent full-year payment of £0.469. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though United Utilities Group's EPS has declined at around 17% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

United Utilities Group's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think United Utilities Group's payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for United Utilities Group that investors need to be conscious of moving forward. 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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