FirstEnergy (NYSE:FE) Has Announced A Dividend Of $0.39
FirstEnergy Corp. (NYSE:FE) has announced that it will pay a dividend of $0.39 per share on the 1st of June. Based on this payment, the dividend yield will be 4.0%, which is fairly typical for the industry.
Check out our latest analysis for FirstEnergy
FirstEnergy's Dividend Is Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, the dividend made up 219% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.
Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $2.20 in 2013, and the most recent fiscal year payment was $1.56. The dividend has shrunk at around 3.4% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
FirstEnergy's Dividend Might Lack Growth
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that FirstEnergy has grown earnings per share at 32% per year over the past five years. EPS has been growing well, but FirstEnergy has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
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 FirstEnergy's payments, as there could be some issues with sustaining them into the future. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for FirstEnergy (2 are a bit unpleasant!) 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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