Yahoo Finance NRG Energy's (NYSE:NRG) Upcoming Dividend Will Be Larger Than Last Year's
NRG Energy, Inc. (NYSE:NRG) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of May to $0.3775. This makes the dividend yield 4.4%, which is above the industry average.
Check out our latest analysis for NRG Energy
NRG Energy's Earnings Easily Cover The Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. NRG Energy is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Looking forward, earnings per share is forecast to rise by 31.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.
NRG Energy Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.36 in 2013 to the most recent total annual payment of $1.51. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that NRG Energy has grown earnings per share at 37% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think NRG Energy's payments are rock solid. While NRG Energy is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
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. Case in point: We've spotted 3 warning signs for NRG Energy (of which 1 doesn't sit too well with us!) you should know about. Is NRG Energy not quite the opportunity you were looking for? Why not check out our selection of top 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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