Read This Before Considering UGI Corporation (NYSE:UGI) For Its Upcoming US$0.33 Dividend

UGI Corporation (NYSE:UGI) is about to trade ex-dividend in the next three days. You will need to purchase shares before the 14th of December to receive the dividend, which will be paid on the 1st of January.

UGI's next dividend payment will be US$0.33 per share, and in the last 12 months, the company paid a total of US$1.32 per share. Calculating the last year's worth of payments shows that UGI has a trailing yield of 3.7% on the current share price of $35.26. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether UGI has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for UGI

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. UGI paid out 51% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (61%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that UGI's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see UGI earnings per share are up 9.4% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, UGI has increased its dividend at approximately 9.5% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is UGI an attractive dividend stock, or better left on the shelf? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. In summary, it's hard to get excited about UGI from a dividend perspective.

With that being said, if dividends aren't your biggest concern with UGI, you should know about the other risks facing this business. To help with this, we've discovered 1 warning sign for UGI that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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