Avangrid, Inc. (NYSE:AGR) stock is about to trade ex-dividend in 4 days time. You can purchase shares before the 5th of March in order to receive the dividend, which the company will pay on the 1st of April.
Avangrid's upcoming dividend is US$0.44 a share, following on from the last 12 months, when the company distributed a total of US$1.76 per share to shareholders. Looking at the last 12 months of distributions, Avangrid has a trailing yield of approximately 3.5% on its current stock price of $49.69. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 78% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. Avangrid paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Avangrid, with earnings per share up 6.1% on average over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Avangrid's dividend payments are effectively flat on where they were four years ago.
The Bottom Line
Is Avangrid worth buying for its dividend? Avangrid has been generating some growth in earnings per share while paying out more than half of its earnings to shareholders in the form of dividends. We think this is a pretty attractive combination, and would be interested in investigating Avangrid more closely.
Wondering what the future holds for Avangrid? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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