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Highlights
- Caribbean Utilities Company offers a dividend with a 5.6% yield.
- Dividend sustainability is under review due to current cash flow situation.
- Limited dividend growth prospects align with company’s earnings trend.
Caribbean Utilities Company, Ltd. (TSX:CUP.U) has announced a dividend of $0.185 to be distributed on March 14th. This dividend positions the company’s annual yield at 5.6% of its stock price, which is relatively higher than the industry average.
Dividend Coverage and Earnings
While an attractive yield can draw investor interest, the key factor remains whether these payments are sustainable. Previously, Caribbean Utilities Company demonstrated enough earning capability to support the dividend, despite not generating free cash flows. Heading into the future, an expected EPS growth of 4.7% next year could maintain the payout ratio at a comfortable 72%, assuming current trends continue.
Consistency and Growth
Caribbean Utilities Company has shown a steady dividend payout in recent years, although it’s still in the early stages of establishing a consistent track record. From 2018 to now, annual dividend payments have gradually increased from $0.68 to $0.74, reflecting an average growth rate of 1.2% per year.
Despite this increment, the growth possibilities of these dividends seem limited. Shareholders have benefited from the income stream, although the company's earnings have only risen by 3.2% per annum over the last five years. This modest growth is slightly concerning given the high percentage of earnings allocated to dividends.
Challenges and Considerations
One notable aspect is the company's issuance of new stock, which equates to 11% of the shares outstanding. Constant issuance could hinder significant dividend growth, as it resembles a Sisyphean task of maintaining balance while pushing against dilution pressures.
While it's reassuring that there hasn't been a dividend cut, there are signs of caution. The stable payout ratio, though comforting, is balanced by limited cash generation for dividend coverage. Caribbean Utilities Company remains a step below the top tier of income stocks, indicating potential challenges in maintaining or significantly growing dividends.
