Avangrid's (NYSE:AGR) Dividend Will Be $0.44

Avangrid, Inc. (NYSE:AGR) has announced that it will pay a dividend of $0.44 per share on the 3rd of July. The dividend yield will be 4.4% based on this payment which is still above the industry average.

See our latest analysis for Avangrid

Avangrid's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Avangrid's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

Over the next year, EPS is forecast to expand by 3.2%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.

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 $1.73 total annually to $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.

Dividend Growth Could Be Constrained

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Avangrid has grown earnings per share at 13% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Avangrid's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Avangrid's payments, as there could be some issues with sustaining them into the future. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Avangrid (1 doesn't sit too well with us!) that you should be aware of before investing. Is Avangrid not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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