Avangrid (NYSE:AGR) Has Affirmed Its Dividend Of $0.44

The board of Avangrid, Inc. (NYSE:AGR) has announced that it will pay a dividend on the 1st of July, with investors receiving $0.44 per share. Based on this payment, the dividend yield on the company's stock will be 4.9%, which is an attractive boost to shareholder returns.

View our latest analysis for Avangrid

Avangrid's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Looking forward, earnings per share is forecast to rise by 27.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Avangrid Doesn't Have A Long Payment History

Avangrid's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of $1.73 in 2016 to the most recent total annual payment of $1.76. Dividend payments have grown at less than 1% a year over this period. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, Avangrid's EPS was effectively flat over the past five years, which could stop the company from paying more every year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Avangrid (1 is potentially serious!) 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.