Yahoo Finance Don't Race Out To Buy WEC Energy Group, Inc. (NYSE:WEC) Just Because It's Going Ex-Dividend
Readers hoping to buy WEC Energy Group, Inc. (NYSE:WEC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase WEC Energy Group's shares on or after the 11th of August will not receive the dividend, which will be paid on the 1st of September.
The company's next dividend payment will be US$0.73 per share. Last year, in total, the company distributed US$2.91 to shareholders. Calculating the last year's worth of payments shows that WEC Energy Group has a trailing yield of 2.8% on the current share price of $103.12. If you buy this business for its dividend, you should have an idea of whether WEC Energy Group's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for WEC Energy Group
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. WEC Energy Group 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 WEC Energy Group generated enough free cash flow to afford its dividend. It paid out an unsustainably high 298% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since WEC Energy Group is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
While WEC Energy Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to WEC Energy Group's ability to maintain its dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at WEC Energy Group, with earnings per share up 7.8% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. WEC Energy Group has delivered 11% 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.
The Bottom Line
Is WEC Energy Group worth buying for its dividend? Earnings per share have grown somewhat, although WEC Energy Group paid out over half its profits and the dividend was not well covered by free cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with WEC Energy Group. Our analysis shows 3 warning signs for WEC Energy Group that we strongly recommend you have a look at before investing in the company.
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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