Yahoo Finance United Utilities Group's (LON:UU.) Shareholders Will Receive A Bigger Dividend Than Last Year
United Utilities Group PLC's (LON:UU.) dividend will be increasing to UK£0.29 on 1st of August. This will take the annual payment from 4.2% to 4.2% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for United Utilities Group
United Utilities Group's Distributions May Be Difficult To Sustain
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. United Utilities Group is unprofitable despite paying a dividend, and it is paying out 98% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.
Looking forward, earnings per share could 27.5% over the next year if the trend of the last few years can't be broken. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.
United Utilities Group Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was UK£0.31 in 2012, and the most recent fiscal year payment was UK£0.43. This works out to be a compound annual growth rate (CAGR) of approximately 3.6% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
The Dividend Has Limited Growth Potential
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Earnings per share has been sinking by 28% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
United Utilities Group's Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for United Utilities Group that you should be aware of before investing. Is United Utilities Group 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.
