Unitil (NYSE:UTL) Has Re-Affirmed Its Dividend Of US$0.38

Unitil Corporation (NYSE:UTL) has announced that it will pay a dividend of US$0.38 per share on the 27th of August. This means the dividend yield will be fairly typical at 2.9%.

See our latest analysis for Unitil

Unitil's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Unitil's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 4.7%. If the dividend continues on this path, the payout ratio could be 61% by next year, which we think can be pretty sustainable going forward.

Unitil 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. The dividend has gone from US$1.38 in 2011 to the most recent annual payment of US$1.52. Its dividends have grown at less than 1% per annum over this time frame. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Has Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. Unitil has impressed us by growing EPS at 7.2% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Unitil is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Unitil that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.

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