Xcel Energy's (NASDAQ:XEL) Shareholders Will Receive A Bigger Dividend Than Last Year

Xcel Energy Inc.'s (NASDAQ:XEL) periodic dividend will be increasing on the 20th of April to $0.57, with investors receiving 4.1% more than last year's $0.548. Based on this payment, the dividend yield for the company will be 3.0%, which is fairly typical for the industry.

See our latest analysis for Xcel Energy

Xcel Energy's Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Xcel Energy was earning enough to cover the dividend, but it wasn't generating any free cash flows. 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.

Over the next year, EPS is forecast to expand by 29.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 54% by next year, which is in a pretty sustainable range.

Xcel Energy Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $1.20 in 2015, and the most recent fiscal year payment was $2.19. This means that it has been growing its distributions at 6.2% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Xcel Energy May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 5.0% per year. Xcel Energy is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Xcel Energy's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Xcel Energy is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Xcel Energy (1 is potentially serious!) that you should be aware of before investing. Is Xcel 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.