CenterPoint Energy (NYSE:CNP) Is Paying Out A Larger Dividend Than Last Year

The board of CenterPoint Energy, Inc. (NYSE:CNP) has announced that it will be increasing its dividend on the 9th of December to US$0.17. Although the dividend is now higher, the yield is only 2.4%, which is below the industry average.

Check out our latest analysis for CenterPoint Energy

CenterPoint Energy's Distributions May Be Difficult To Sustain

Even a low dividend yield can be attractive if it is sustained for years on end. Even though CenterPoint Energy is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Recent, EPS has fallen by 27.7%, so this could continue over the next year. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from US$0.79 in 2011 to the most recent annual payment of US$0.68. The dividend has shrunk at around 1.5% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though CenterPoint Energy's EPS has declined at around 28% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The company has also been raising capital by issuing stock equal to 15% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

CenterPoint Energy's Dividend Doesn't Look Great

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 CenterPoint Energy 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 performing dividend stock.

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.

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