Ameren's (NYSE:AEE) Shareholders Will Receive A Bigger Dividend Than Last Year

By
Simply Wall St
Published
May 19, 2022
NYSE:AEE
Source: Shutterstock

Ameren Corporation (NYSE:AEE) has announced that it will be increasing its dividend on the 30th of June to US$0.59. Based on the announced payment, the dividend yield for the company will be 2.5%, which is fairly typical for the industry.

View our latest analysis for Ameren

Ameren's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Ameren's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Over the next year, EPS is forecast to expand by 5.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 58% by next year, which is in a pretty sustainable range.

historic-dividend
NYSE:AEE Historic Dividend May 19th 2022

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. The dividend has gone from US$1.54 in 2012 to the most recent annual payment of US$2.36. This means that it has been growing its distributions at 4.4% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Ameren Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Ameren has seen EPS rising for the last five years, at 7.8% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Ameren you should be aware of, and 1 of them is significant. 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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