RGC Resources' (NASDAQ:RGCO) Dividend Will Be Increased To $0.2175

The board of RGC Resources, Inc. (NASDAQ:RGCO) has announced that the dividend on 2nd of February will be increased to $0.2175, which will be 4.8% higher than last year's payment of $0.208 which covered the same period. The payment will take the dividend yield to 3.7%, which is in line with the average for the industry.

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RGC Resources' Future Dividend Projections Appear Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last dividend, RGC Resources is earning enough to cover the payment, but then it makes up 116% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Unless the company can turn things around, EPS could fall by 0.2% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 69%, which is definitely feasible to continue.

See our latest analysis for RGC Resources

RGC Resources Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.513 in 2015, and the most recent fiscal year payment was $0.83. This means that it has been growing its distributions at 4.9% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

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. Unfortunately things aren't as good as they seem. However, RGC Resources' EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On RGC Resources' Dividend

Overall, we always like to see the dividend being raised, but we don't think RGC Resources will make a great income stock. 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. Just as an example, we've come across 2 warning signs for RGC Resources you should be aware of, and 1 of them is a bit unpleasant. 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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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.