The board of United Utilities Group PLC (LON:UU.) has announced that it will pay a dividend on the 1st of February, with investors receiving £0.1659 per share. The payment will take the dividend yield to 4.3%, which is in line with the average for the industry.

View our latest analysis for United Utilities Group

United Utilities Group Doesn't Earn Enough To Cover Its Payments

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. United Utilities Group is unprofitable despite paying a dividend, and it is paying out 703% of its free cash flow. This makes us feel that the dividend will be hard to maintain.

The next 12 months is set to see EPS grow by 160.9%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet. historic-dividend

United Utilities Group Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the annual payment back then was £0.343, compared to the most recent full-year payment of £0.469. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Potential Is Shaky

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. Earnings per share has been sinking by 17% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think United Utilities Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for United Utilities Group that investors should know about before committing capital to this stock. 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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