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The board of OGE Energy Corp. (NYSE:OGE) has announced that it will pay a dividend of US$0.41 per share on the 29th of July. This means the annual payment is 4.1% of the current stock price, which is above the average for the industry.
OGE Energy's Earnings Easily Cover the Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, OGE Energy's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
EPS is set to fall by 54.3% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 80%, which is definitely on the higher side.
OGE Energy Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was US$0.75 in 2012, and the most recent fiscal year payment was US$1.64. This means that it has been growing its distributions at 8.1% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. OGE Energy has seen EPS rising for the last five years, at 22% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Our Thoughts On OGE Energy's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 5 warning signs for OGE Energy you should be aware of, and 2 of them shouldn't be ignored. Is OGE Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.