Ameren (NYSE:AEE) Is Paying Out A Larger Dividend Than Last Year

The board of Ameren Corporation (NYSE:AEE) has announced that the dividend on 31st of March will be increased to $0.71, which will be 6.0% higher than last year's payment of $0.67 which covered the same period. Even though the dividend went up, the yield is still quite low at only 2.8%.

Check out our latest analysis for Ameren

Ameren's Projected Earnings Seem Likely To Cover Future Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Ameren'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.

The next year is set to see EPS grow by 30.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which is in the range that makes us comfortable with the sustainability of the dividend.

Ameren Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.60 in 2015 to the most recent total annual payment of $2.68. This works out to be a compound annual growth rate (CAGR) of approximately 5.3% a year 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.

Ameren Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Ameren has grown earnings per share at 5.4% 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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Ameren is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Ameren (1 makes us a bit uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.