Unitil (NYSE:UTL) Will Pay A Larger Dividend Than Last Year At $0.45

Unitil Corporation (NYSE:UTL) will increase its dividend on the 28th of February to $0.45, which is 5.9% higher than last year's payment from the same period of $0.425. This takes the annual payment to 3.2% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Unitil

Unitil's Payment Could Potentially Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. 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 5.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 57%, which is in the range that makes us comfortable with the sustainability of the dividend.

Unitil 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 $1.38 in 2015, and the most recent fiscal year payment was $1.70. This works out to be a compound annual growth rate (CAGR) of approximately 2.1% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. However, Unitil's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On Unitil's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Unitil is earning enough to cover the payments, the cash flows are lacking. We don't think Unitil 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. Just as an example, we've come across 2 warning signs for Unitil you should be aware of, and 1 of them is a bit unpleasant. Is Unitil 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.