The board of Ameren Corporation (NYSE:AEE) has announced that the dividend on 31st of March will be increased to $0.63, which will be 6.8% higher than last year's payment of $0.59 which covered the same period. Although the dividend is now higher, the yield is only 2.7%, which is below the industry average.
See our latest analysis for Ameren
Ameren's Earnings Easily Cover The Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Ameren's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Looking forward, earnings per share is forecast to rise by 20.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which is in the range that makes us comfortable with the sustainability of the dividend.
Ameren Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $1.60, compared to the most recent full-year payment of $2.36. This works out to be a compound annual growth rate (CAGR) of approximately 4.0% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Ameren has grown earnings per share at 14% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Ameren's payments are rock solid. While Ameren is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Ameren (of which 1 shouldn't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
About NYSE:AEE
Ameren
Operates as a public utility holding company in the United States.
Average dividend payer with acceptable track record.
