Yahoo Finance FirstEnergy (NYSE:FE) Has Announced That It Will Be Increasing Its Dividend To $0.425
FirstEnergy Corp. (NYSE:FE) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of June to $0.425. This will take the dividend yield to an attractive 4.4%, providing a nice boost to shareholder returns.
See our latest analysis for FirstEnergy
FirstEnergy's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, FirstEnergy was paying out 81% of earnings, but a comparatively small 68% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Over the next year, EPS is forecast to expand by 57.4%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 52% which brings it into quite a comfortable range.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of $2.20 in 2014 to the most recent total annual payment of $1.64. The dividend has shrunk at around 2.9% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
FirstEnergy Could Grow Its Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that FirstEnergy has grown earnings per share at 7.9% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
Our Thoughts On FirstEnergy's Dividend
In summary, while it's always good to see the dividend being raised, we don't think FirstEnergy's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, FirstEnergy has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
