Chesapeake Utilities (NYSE:CPK) Is Increasing Its Dividend To $0.64

Chesapeake Utilities Corporation's (NYSE:CPK) dividend will be increasing from last year's payment of the same period to $0.64 on 5th of July. Although the dividend is now higher, the yield is only 2.3%, which is below the industry average.

View our latest analysis for Chesapeake Utilities

Chesapeake Utilities' Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Chesapeake Utilities' earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Over the next year, EPS is forecast to expand by 37.6%. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.

Chesapeake Utilities Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was $1.03, compared to the most recent full-year payment of $2.56. This implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 3.9% per year. Chesapeake Utilities is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

We should note that Chesapeake Utilities has issued stock equal to 25% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Chesapeake Utilities will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Chesapeake Utilities is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Chesapeake Utilities (of which 1 is a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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