Essential Utilities (NYSE:WTRG) Is Increasing Its Dividend To $0.3071

Essential Utilities, Inc.'s (NYSE:WTRG) periodic dividend will be increasing on the 1st of September to $0.3071, with investors receiving 7.0% more than last year's $0.287. This will take the dividend yield to an attractive 2.8%, providing a nice boost to shareholder returns.

See our latest analysis for Essential Utilities

Essential Utilities' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Essential Utilities 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.

The next year is set to see EPS grow by 27.6%. If the dividend continues on this path, the payout ratio could be 57% by next year, which we think can be pretty sustainable going forward.

Essential Utilities Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was $0.56, compared to the most recent full-year payment of $1.15. This works out to be a compound annual growth rate (CAGR) of approximately 7.4% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Essential Utilities May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 4.9% a year for the past five years, which isn't massive but still better than seeing them shrink. Essential Utilities is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Essential Utilities' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Essential Utilities' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Essential Utilities (of which 1 is a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.