Portland General Electric Company (NYSE:POR) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Portland General Electric's shares on or after the 23rd of September, you won't be eligible to receive the dividend, when it is paid on the 17th of October.
The company's upcoming dividend is US$0.45 a share, following on from the last 12 months, when the company distributed a total of US$1.81 per share to shareholders. Based on the last year's worth of payments, Portland General Electric has a trailing yield of 3.6% on the current stock price of $50.15. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Portland General Electric paid out 65% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Portland General Electric generated enough free cash flow to afford its dividend. It paid out an unsustainably high 296% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Portland General Electric intends to continue funding this dividend, or if it could be forced to cut the payment.
Portland General Electric paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Portland General Electric to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Portland General Electric earnings per share are up 4.4% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Portland General Electric has delivered 5.5% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Has Portland General Electric got what it takes to maintain its dividend payments? Portland General Electric is paying out a reasonable percentage of its income and an uncomfortably high 296% of its cash flow as dividends. At least earnings per share have been growing steadily. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Portland General Electric.
So if you're still interested in Portland General Electric despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Portland General Electric is showing 3 warning signs in our investment analysis, and 1 of those is a bit concerning...
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.
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