The board of Global Water Resources, Inc. (NASDAQ:GWRS) has announced that it will pay a dividend on the 30th of April, with investors receiving $0.0253 per share. This means the dividend yield will be fairly typical at 3.0%.

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Global Water Resources' Projections Indicate Future Payments May Be Unsustainable

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Over the next year, EPS is forecast to expand by 12.4%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 111% over the next year.

Check out our latest analysis for Global Water Resources

Global Water Resources Doesn't Have A Long Payment History

Global Water Resources' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. 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. Global Water Resources hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

Global Water Resources' Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Global Water Resources has impressed us by growing EPS at 16% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

We should note that Global Water Resources has issued stock equal to 12% of shares outstanding. 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.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. 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. 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.