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Here's What We Like About NRG Energy, Inc.'s (NYSE:NRG) Upcoming Dividend

Simply Wall St
·4 mins read

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see NRG Energy, Inc. (NYSE:NRG) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 30th of April will not receive the dividend, which will be paid on the 15th of May.

NRG Energy's next dividend payment will be US$0.30 per share, and in the last 12 months, the company paid a total of US$1.20 per share. Calculating the last year's worth of payments shows that NRG Energy has a trailing yield of 3.7% on the current share price of $32.6. If you buy this business for its dividend, you should have an idea of whether NRG Energy's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for NRG Energy

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. NRG Energy paid out just 2.5% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether NRG Energy generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 2.7% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:NRG Historical Dividend Yield April 25th 2020
NYSE:NRG Historical Dividend Yield April 25th 2020

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see NRG Energy has grown its earnings rapidly, up 132% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, NRG Energy looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past eight years, NRG Energy has increased its dividend at approximately 16% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Should investors buy NRG Energy for the upcoming dividend? We love that NRG Energy is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. NRG Energy looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks NRG Energy is facing. To help with this, we've discovered 5 warning signs for NRG Energy (2 shouldn't be ignored!) that you ought to be aware of before buying the shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.