Chesapeake Utilities' (NYSE:CPK) Upcoming Dividend Will Be Larger Than Last Year's

Simply Wall St
·2 min read
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The board of Chesapeake Utilities Corporation (NYSE:CPK) has announced that it will be increasing its dividend on the 5th of July to US$0.54. Despite this raise, the dividend yield of 1.5% is only a modest boost to shareholder returns.

Check out our latest analysis for Chesapeake Utilities

Chesapeake Utilities' Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Chesapeake Utilities' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 7.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 41% by next year, which is in a pretty sustainable range.

historic-dividend
historic-dividend

Chesapeake Utilities Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the first annual payment was US$0.92, compared to the most recent full-year payment of US$2.14. This works out to be a compound annual growth rate (CAGR) of approximately 8.8% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see Chesapeake Utilities has been growing its earnings per share at 12% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Chesapeake Utilities' payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 2 warning signs for Chesapeake Utilities (of which 1 doesn't sit too well with us!) you should know about. Is Chesapeake Utilities 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.