Global Water Resources, Inc. (NASDAQ:GWRS) will pay a dividend of $0.0253 on the 28th of February. This means that the annual payment will be 2.7% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Global Water Resources

Global Water Resources' Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, the dividend made up 113% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to expand by 15.6%. If the dividend continues along recent trends, we estimate the payout ratio could reach 85%, which is on the higher side, but certainly still feasible.

Global Water Resources Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. Since 2016, the dividend has gone from $0.28 total annually to $0.304. Its dividends have grown at less than 1% per annum over this time frame. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Dividend Growth Could Be Constrained

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Global Water Resources has grown earnings per share at 19% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Global Water Resources' payments, as there could be some issues with sustaining them into the future. Strong earnings growth means Global Water Resources has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for Global Water Resources that investors need to be conscious of moving forward. Is Global Water Resources not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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