FirstEnergy (NYSE:FE) Has Affirmed Its Dividend Of $0.39
FirstEnergy Corp. (NYSE:FE) has announced that it will pay a dividend of $0.39 per share on the 1st of March. This payment means that the dividend yield will be 3.8%, which is around the industry average.
Check out our latest analysis for FirstEnergy
FirstEnergy's Payment Has Solid Earnings Coverage
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, FirstEnergy's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 1,129% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
The next year is set to see EPS grow by 29.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 57% by next year, which is in a pretty sustainable range.
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from $2.20 total annually to $1.56. This works out to be a decline of approximately 3.4% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that FirstEnergy has been growing its earnings per share at 56% a year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.
Our Thoughts On FirstEnergy's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While FirstEnergy is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, FirstEnergy has 2 warning signs (and 1 which is a bit concerning) we think you should know about. 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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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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