RGC Resources (NASDAQ:RGCO) Is Increasing Its Dividend To $0.1975

Simply Wall St
·3 min read

RGC Resources, Inc. (NASDAQ:RGCO) will increase its dividend from last year's comparable payment on the 1st of February to $0.1975. This takes the annual payment to 3.2% of the current stock price, which is about average for the industry.

Check out our latest analysis for RGC Resources

RGC Resources Might Find It Hard To Continue The Dividend

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Despite not generating a profit, RGC Resources is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Recent, EPS has fallen by 35.4%, so this could continue over the next year. 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.

historic-dividend
historic-dividend

RGC Resources Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from $0.467 total annually to $0.79. This implies that the company grew its distributions at a yearly rate of about 5.4% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Earnings per share has been sinking by 35% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

An additional note is that the company has been raising capital by issuing stock equal to 17% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

RGC Resources' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think RGC Resources will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for RGC Resources (3 are significant!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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