Southwest Gas Holdings (NYSE:SWX) Has Announced A Dividend Of $0.62

The board of Southwest Gas Holdings, Inc. (NYSE:SWX) has announced that it will pay a dividend on the 2nd of September, with investors receiving $0.62 per share. This payment means the dividend yield will be 3.2%, which is below the average for the industry.

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Southwest Gas Holdings' Future Dividend Projections Appear Well Covered By Earnings

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, Southwest Gas Holdings' dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 1,287% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

The next year is set to see EPS grow by 98.5%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 49% which brings it into quite a comfortable range.

Check out our latest analysis for Southwest Gas Holdings

Southwest Gas Holdings Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $1.46 in 2015, and the most recent fiscal year payment was $2.48. This means that it has been growing its distributions at 5.4% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth Is Doubtful

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Southwest Gas Holdings has seen earnings per share falling at 6.8% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Southwest Gas Holdings (2 are concerning!) that you should be aware of before investing. 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.