Stock Analysis

American States Water's (NYSE:AWR) Dividend Will Be Increased To US$0.36

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NYSE:AWR
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The board of American States Water Company (NYSE:AWR) has announced that it will be increasing its dividend on the 1st of September to US$0.36. Based on the announced payment, the dividend yield for the company will be 1.5%, which is fairly typical for the industry.

See our latest analysis for American States Water

American States Water's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, American States Water's 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.

EPS is set to fall by 0.2% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 59%, which we are pretty comfortable with and we think is feasible on an earnings basis.

historic-dividend
NYSE:AWR Historic Dividend August 5th 2021

American States Water 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. The dividend has gone from US$0.52 in 2011 to the most recent annual payment of US$1.46. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

American States Water Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that American States Water has grown earnings per share at 9.2% per 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 American States Water's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While American States Water is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for American States Water that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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What are the risks and opportunities for American States Water?

American States Water Company, through its subsidiaries, provides water and electric services to residential, commercial, industrial, and other customers in the United States.

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Rewards

  • Earnings are forecast to grow 8.77% per year

Risks

  • Debt is not well covered by operating cash flow

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American States Water

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