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

Avangrid, Inc. (NYSE:AGR) has announced that it will pay a dividend of US$0.44 per share on the 1st of April. Based on this payment, the dividend yield will be 4.0%, which is fairly typical for the industry.

See our latest analysis for Avangrid

Avangrid Is Paying Out More Than It Is Earning

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. 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. We think that this practice can make the dividend quite risky in the future.

EPS is set to fall by 14.5% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 120%, which could put the dividend in jeopardy if the company's earnings don't improve.

Avangrid Is Still Building Its Track Record

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. Since 2016, the dividend has gone from US$1.73 to US$1.76. Dividend payments have been growing, but very slowly over the period. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Avangrid May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. 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 the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

We'd also point out that Avangrid has issued stock equal to 25% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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.

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. As an example, we've identified 2 warning signs for Avangrid that you should be aware of before investing. 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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