California Water Service Group's (NYSE:CWT) Upcoming Dividend: A Sweet Surprise for Investors

As the calendar turns to February, investors in California Water Service Group (NYSE:CWT) have something to look forward to: an increased dividend. The company has announced that its quarterly dividend will be hiked to $0.34 per share, a 21% increase from the previous year's payment of $0.28. This news is sure to delight income-oriented investors, as the dividend yield will remain in line with the industry average of 2.5%.

But what does this dividend increase mean for CWT's stock price and overall valuation? Let's break down the potential impacts:

1. Attractiveness to Income Investors: A higher dividend yield makes CWT more appealing to income-focused investors, who may be drawn to the stock's increased payout. This could lead to increased demand for CWT shares, potentially driving up the stock price.
2. Potential Impact on P/E Ratio: A higher dividend yield could lead to a higher P/E ratio, as investors may be willing to pay more for each dollar of earnings due to the increased income. However, this is not guaranteed, as other factors such as earnings growth, market conditions, and investor sentiment also play a role in determining the P/E ratio.
3. Potential Impact on Earnings per Share (EPS): The dividend increase is not expected to have a significant impact on CWT's EPS, as the company is forecast to have a payout ratio of 46% after the increase. A payout ratio of 46% indicates that the company is distributing a relatively small portion of its earnings as dividends, leaving room for reinvestment in the business and potential EPS growth.
4. Potential Impact on Valuation Multiples: The dividend increase may also impact other valuation multiples, such as the enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio. A higher dividend yield could lead to a higher EV/EBITDA ratio, as investors may be willing to pay more for the company's cash flows due to the increased income.



California Water Service Group's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. California Water Service Group is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to fall by 19.5%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 46%, which we are pretty comfortable with and we think is feasible on an earnings basis.

California Water Service Group Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.65 in 2015 to the most recent total annual payment of $1.12. This means that it has been growing its distributions at 5.6% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. California Water Service Group has seen EPS rising for the last five years, at 19% per annum. California Water Service Group definitely has the potential to grow its dividend in the future.

In conclusion, California Water Service Group's upcoming dividend increase is a sweet surprise for investors, as it offers a higher yield without compromising the company's financial stability. While the impact on the stock price and valuation is uncertain, the dividend increase is likely to make CWT more attractive to income-oriented investors. As always, it's essential to conduct thorough research and consider your personal financial situation before making any investment decisions.