Middlesex Water (NASDAQ:MSEX) Has Announced That It Will Be Increasing Its Dividend To $0.325

The board of Middlesex Water Company (NASDAQ:MSEX) has announced that the dividend on 1st of December will be increased to $0.325, which will be 4.0% higher than last year's payment of $0.313 which covered the same period. Even though the dividend went up, the yield is still quite low at only 2.0%.

Check out our latest analysis for Middlesex Water

Middlesex Water's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Middlesex Water was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share could rise by 5.6% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 60% by next year, which we think can be pretty sustainable going forward.

Middlesex Water Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.75 in 2013 to the most recent total annual payment of $1.25. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

We Could See Middlesex Water's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Middlesex Water has been growing its earnings per share at 5.6% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Middlesex Water's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Middlesex Water's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 Middlesex Water (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is Middlesex Water 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.