Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Over the past 3 years, Spark Energy Inc (NASDAQ:SPKE) has returned an average of 6.00% per year to shareholders in terms of dividend yield. Does Spark Energy tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. See our latest analysis for Spark Energy
Here’s how I find good dividend stocks
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share amount increased over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How well does Spark Energy fit our criteria?
The company currently pays out 83.67% of its earnings as a dividend, which means that the dividend is covered by earnings. Going forward, analysts expect SPKE’s payout to increase to 99.46% of its earnings, which leads to a dividend yield of around 6.46%. However, EPS is forecasted to fall to $0.73 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. This also brings about uncertainty around the sustainability of the payout ratio. If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Spark Energy as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. In terms of its peers, Spark Energy produces a yield of 6.42%, which is high for electric utilities stocks.
If you are building an income portfolio, then Spark Energy is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three pertinent factors you should further examine:
1. Future Outlook: What are well-informed industry analysts predicting for SPKE’s future growth? Take a look at our free research report of analyst consensus for SPKE’s outlook.
2. Valuation: What is SPKE worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SPKE is currently mispriced by the market.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.