Avangrid (NYSE:AGR) Has Re-Affirmed Its Dividend Of US$0.44
The board of Avangrid, Inc. (NYSE:AGR) has announced that it will pay a dividend of US$0.44 per share on the 1st of April. This payment means that the dividend yield will be 4.0%, which is around the industry average.
See our latest analysis for Avangrid
Avangrid Is Paying Out More Than It Is Earning
Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Avangrid was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.
Over the next year, EPS is forecast to fall by 14.5%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 120%, which could put the dividend under pressure if earnings don't start to improve.
Avangrid Doesn't Have A Long Payment History
It is great to see that Avangrid has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from US$1.73 in 2016 to the most recent annual payment of US$1.76. Dividend payments have been growing, but very slowly over the period. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
Avangrid May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. Avangrid hasn't seen much change in its earnings per share over the last five years. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.
We'd also point out that Avangrid has issued stock equal to 25% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Avangrid's payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. Taking the debate a bit further, we've identified 2 warning signs for Avangrid that investors need to be conscious of moving forward. 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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