Southwest Gas Holdings (NYSE:SWX) Is Due To Pay A Dividend Of $0.62

Southwest Gas Holdings, Inc. (NYSE:SWX) will pay a dividend of $0.62 on the 1st of March. This payment means that the dividend yield will be 4.1%, which is around the industry average.

View our latest analysis for Southwest Gas Holdings

Southwest Gas Holdings' Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Despite not generating a profit, Southwest Gas Holdings is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 27%, which makes us pretty comfortable with the sustainability of the dividend.

Southwest Gas Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $1.32 in 2013, and the most recent fiscal year payment was $2.48. This means that it has been growing its distributions at 6.5% 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.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Southwest Gas Holdings' EPS has fallen by approximately 37% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Southwest Gas Holdings has 3 warning signs (and 2 which make us uncomfortable) we think you should know about. Is Southwest Gas Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.