RGC Resources (NASDAQ:RGCO) Will Pay A Dividend Of $0.2075

RGC Resources, Inc. (NASDAQ:RGCO) has announced that it will pay a dividend of $0.2075 per share on the 3rd of November. This means that the annual payment will be 3.8% of the current stock price, which is in line with the average for the industry.

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RGC Resources' Projected Earnings Seem Likely To Cover Future Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, RGC Resources' dividend was only 62% of earnings, however it was paying out 116% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 6.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 62% by next year, which is in a pretty sustainable range.

Check out our latest analysis for RGC Resources

RGC Resources Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the annual payment back then was $0.513, compared to the most recent full-year payment of $0.83. This means that it has been growing its distributions at 4.9% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Unfortunately, RGC Resources' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about RGC Resources' payments, as there could be some issues with sustaining them into the future. While RGC Resources is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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 concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.