NRG Energy (NYSE:NRG) Will Pay A Larger Dividend Than Last Year At $0.3775
The board of NRG Energy, Inc. (NYSE:NRG) has announced that it will be paying its dividend of $0.3775 on the 15th of February, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 4.6%, providing a nice boost to shareholder returns.
See our latest analysis for NRG Energy
NRG Energy'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 making this announcement, NRG Energy was paying a whopping 405% as a dividend, but this only made up 18% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
EPS is set to fall by 20.7% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 30%, which is comfortable for the company to continue in the future.
NRG Energy Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $0.36 in 2013 to the most recent total annual payment of $1.51. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. NRG Energy has seen EPS rising for the last five years, at 45% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While NRG Energy is earning enough to cover the payments, the cash flows are lacking. We don't think NRG Energy is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for NRG Energy (2 are significant!) that you should be aware of before investing. 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.
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