RGC Resources (NASDAQ:RGCO) Has Announced That It Will Be Increasing Its Dividend To $0.2075

RGC Resources, Inc. (NASDAQ:RGCO) has announced that it will be increasing its periodic dividend on the 1st of February to $0.2075, which will be 3.7% higher than last year's comparable payment amount of $0.20. Based on this payment, the dividend yield for the company will be 3.8%, which is fairly typical for the industry.

View our latest analysis for RGC Resources

RGC Resources' Future Dividend Projections Appear Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, RGC Resources' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. 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.

Over the next year, EPS could expand by 1.2% if recent trends continue. If the dividend continues on this path, the payout ratio could be 73% by next year, which we think can be pretty sustainable going forward.

RGC Resources Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was $0.493, compared to the most recent full-year payment of $0.80. This implies that the company grew its distributions at a yearly rate of about 5.0% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Although it's important to note that RGC Resources' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. RGC Resources is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On RGC Resources' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, RGC Resources has 3 warning signs (and 2 which don't sit too well with us) we think you should know about. Is RGC Resources 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.