Why You Should Leave Global Water Resources, Inc. (NASDAQ:GWRS)'s Upcoming Dividend On The Shelf
Readers hoping to buy Global Water Resources, Inc. (NASDAQ:GWRS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 13th of December in order to receive the dividend, which the company will pay on the 30th of December.
Global Water Resources's next dividend payment will be US$0.024 per share, and in the last 12 months, the company paid a total of US$0.29 per share. Looking at the last 12 months of distributions, Global Water Resources has a trailing yield of approximately 2.2% on its current stock price of $13.14. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Global Water Resources
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Global Water Resources paid out 262% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Global Water Resources paid out more free cash flow than it generated - 194%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
As Global Water Resources's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Click here to see how much of its profit Global Water Resources paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Global Water Resources's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 60% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past three years, Global Water Resources has increased its dividend at approximately 0.7% a year on average.
Final Takeaway
Has Global Water Resources got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (262%) and cash flow (194%) as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Global Water Resources.
Want to learn more about Global Water Resources? Here's a visualisation of its historical rate of revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
