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Essential's (WTRG) Share Price Gains on 7% Dividend Hike

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Essential Utilities (WTRG - Free Report) announced a 7% increase in quarterly dividend rate on Jul 2, 2021 and as a consequence, its share price moved up 0.6% from the date of announcement of dividend hike. The new dividend rate will be 26.82 cents per share and will be payable on Sep 1, 2021 to shareholders of record on Aug 13, 2021.

Increasing dividend rate on an annual basis has become a regular practice for Essential. This marks the 31st increase in dividend rate in the past 30 years. The company has been paying dividend to shareholders without fail for the past 75 years.

Its new annualized dividend is $1.0728 per share and dividend yield is presently 2.25%, which is better than the industry’s average of 1.63% and Zacks S&P 500 composite’s 1.33%. The company’s targeted dividend payout ratio continues to be 60-65% of net income.

Can Essential Continue Dividend Hikes?

Past performance of companies does not necessarily ensure the payment of future dividend. Essential’s dividend payment history indicates that the company has been performing steadily and generating enough cash flow to distribute dividend to shareholders.

Essential will continue to make systematic investments to strengthen its water, wastewater and natural gas infrastructure. The company plans to invest $3 billion from 2021 through 2023 to fortify operations and efficiently serve the expanding customer base. Rate hike application and approval from the commission help it recoup expenditure and fund future capital projects.

Apart from expanding operation organically, Essential is also making strategic acquisitions to expand operations. Completion of the acquisition of Peoples Gas last year allowed the company to expand operation in the fast expanding natural gas business. During the five-year period ended Dec 31, 2020, Essential expanded utility operations by completing 46 acquisitions of water or wastewater utilities, which in turn added 87,000 new customers.

So, Essential is focused on expanding operations through organic and inorganic initiatives, and continues to generate funds utilized by management for declaration of dividend. These strategic initiatives of the company indicate that it will be able to pay dividend to shareholders in the future as well.

Utilities’ Legacy of Dividend Payment

The companies that are involved in utility services generally have stable operations and earnings. Consistent performance and the ability to generate cash flows allow utilities to reward shareholders with regular dividend. Essential has been paying dividend regularly for the past 75 years.

It is not the only company in the utility space having a long dividend payment history. There are quite a few utilities having a track record of more than 100 years of consistent dividend payment.

Utilities like National Fuel Gas (NFG - Free Report) , Consolidated Edison, Inc. (ED - Free Report) and Edison International (EIX - Free Report) , among others, have also been rewarding shareholders with dividend payments for more than a century without fail.

Zacks Rank and Price Performance

Essential currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of the company have outperformed the industry in the past 10 days.

Zacks Investment ResearchImage Source: Zacks Investment Research

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