UGI's (NYSE:UGI) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of UGI Corporation (NYSE:UGI) has announced that it will be paying its dividend of $0.375 on the 1st of July, an increased payment from last year's comparable dividend. This makes the dividend yield 4.9%, which is above the industry average.

See our latest analysis for UGI

UGI's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Even though UGI is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 40%, which makes us pretty comfortable with the sustainability of the dividend.

UGI Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $0.72, compared to the most recent full-year payment of $1.50. This implies that the company grew its distributions at a yearly rate of about 7.6% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown at around 3.6% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings growth isn't particularly strong, and if the company isn't able to become profitable fairly soon, the dividend could come under pressure.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think UGI will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for UGI that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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