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

Unitil Corporation (NYSE:UTL) will increase its dividend on the 25th of February to US$0.39. This makes the dividend yield about the same as the industry average at 3.3%.

Check out our latest analysis for Unitil

Unitil's Earnings Easily Cover the Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Unitil was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 7.0% over the next year. If the dividend continues on this path, the payout ratio could be 66% by next year, which we think can be pretty sustainable going forward.

Unitil Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from US$1.38 to US$1.56. This implies that the company grew its distributions at a yearly rate of about 1.2% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

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. Earnings has been rising at 3.3% per annum over the last five years, which admittedly is a bit slow. Growth of 3.3% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Unitil's Dividend

Overall, we always like to see the dividend being raised, but we don't think Unitil will make a great income stock. While Unitil is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Unitil has 2 warning signs (and 1 which is concerning) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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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.