CenterPoint Energy (NYSE:CNP) Is Paying Out A Larger Dividend Than Last Year
CenterPoint Energy, Inc. (NYSE:CNP) has announced that it will be increasing its dividend on the 10th of March to US$0.17. Even though the dividend went up, the yield is still quite low at only 2.4%.
Check out our latest analysis for CenterPoint Energy
CenterPoint Energy's Distributions May Be Difficult To Sustain
Even a low dividend yield can be attractive if it is sustained for years on end. Even though CenterPoint Energy is not generating a profit, it is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
Over the next year, EPS might fall by 27.7% based on recent performance. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.
Dividend Volatility
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was US$0.79 in 2012, and the most recent fiscal year payment was US$0.68. Doing the maths, this is a decline of about 1.5% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth Potential Is Shaky
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. Over the past five years, it looks as though CenterPoint Energy's EPS has declined at around 28% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
We'd also point out that CenterPoint Energy has issued stock equal to 15% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
CenterPoint Energy's Dividend Doesn't Look Great
In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for CenterPoint Energy you should be aware of, and 1 of them can't be ignored. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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