Chesapeake Utilities' (NYSE:CPK) Dividend Will Be Increased To $0.59

The board of Chesapeake Utilities Corporation (NYSE:CPK) has announced that it will be increasing its dividend by 10% on the 5th of July to $0.59, up from last year's comparable payment of $0.535. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

Check out our latest analysis for Chesapeake Utilities

Chesapeake Utilities' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. The last payment was quite easily covered by earnings, but it made up 124% 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.

The next year is set to see EPS grow by 25.8%. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.

Chesapeake Utilities Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was $0.973, compared to the most recent full-year payment of $2.14. This means that it has been growing its distributions at 8.2% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Chesapeake Utilities May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 4.5% a year for the past five years, which isn't massive but still better than seeing them shrink. The company has been growing at a pretty soft 4.5% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Chesapeake Utilities' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Chesapeake Utilities is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Chesapeake Utilities that investors should know about before committing capital to this stock. 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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