Global Water Resources (NASDAQ:GWRS) Has Affirmed Its Dividend Of $0.0253

Global Water Resources, Inc. (NASDAQ:GWRS) will pay a dividend of $0.0253 on the 31st of October. This payment means that the dividend yield will be 3.0%, which is around the industry average.

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Global Water Resources' Payment Could Potentially Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before this announcement, Global Water Resources was paying out 136% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

The next year is set to see EPS grow by 102.5%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 66% which would be quite comfortable going to take the dividend forward.

View our latest analysis for Global Water Resources

Global Water Resources Doesn't Have A Long Payment History

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 2016, the annual payment back then was $0.28, compared to the most recent full-year payment of $0.304. Dividend payments have grown at less than 1% a year over this period. 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.

Global Water Resources' Dividend Might Lack Growth

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Global Water Resources has seen EPS rising for the last five years, at 34% per annum. Although earnings per share is up nicely Global Water Resources is paying out 136% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

An additional note is that the company has been raising capital by issuing stock equal to 13% of shares outstanding in the last 12 months. 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.

Global Water Resources' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Global Water Resources' payments, as there could be some issues with sustaining them into the future. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Global Water Resources that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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