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Ameren (NYSE:AEE) Will Pay A Larger Dividend Than Last Year At US$0.59

·2 min read

Ameren Corporation (NYSE:AEE) has announced that it will be increasing its dividend on the 31st of March to US$0.59. Based on the announced payment, the dividend yield for the company will be 2.7%, which is fairly typical for the industry.

See our latest analysis for Ameren

Ameren's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Ameren's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Over the next year, EPS is forecast to expand by 3.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 59% by next year, which is in a pretty sustainable range.

historic-dividend
historic-dividend

Ameren Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from US$1.54 in 2012 to the most recent annual payment of US$2.36. This works out to be a compound annual growth rate (CAGR) of approximately 4.4% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

We Could See Ameren's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Ameren has seen EPS rising for the last five years, at 7.2% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Ameren's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Ameren (1 is significant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.