Southwest Gas Holdings' (NYSE:SWX) Dividend Will Be $0.62

The board of Southwest Gas Holdings, Inc. (NYSE:SWX) has announced that it will pay a dividend of $0.62 per share on the 2nd of June. This means that the annual payment will be 3.4% of the current stock price, which is in line with the average for the industry.

Our free stock report includes 1 warning sign investors should be aware of before investing in Southwest Gas Holdings. Read for free now.

Southwest Gas Holdings' Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before this announcement, Southwest Gas Holdings was paying out 90% of earnings, but a comparatively small 43% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 61.2%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 59% which would be quite comfortable going to take the dividend forward.

View our latest analysis for Southwest Gas Holdings

Southwest Gas Holdings Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $1.46 in 2015, and the most recent fiscal year payment was $2.48. This works out to be a compound annual growth rate (CAGR) of approximately 5.4% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. In the last five years, Southwest Gas Holdings' earnings per share has shrunk at approximately 6.8% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On Southwest Gas Holdings' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We don't think Southwest Gas Holdings is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Southwest Gas Holdings that investors should know about before committing capital to this stock. 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.