CenterPoint Energy's (NYSE:CNP) Dividend Will Be Increased To $0.19

CenterPoint Energy, Inc. (NYSE:CNP) will increase its dividend from last year's comparable payment on the 9th of March to $0.19. Although the dividend is now higher, the yield is only 2.5%, which is below the industry average.

Check out our latest analysis for CenterPoint Energy

CenterPoint Energy's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, CenterPoint Energy's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 17.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 39% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.81 in 2013 to the most recent total annual payment of $0.76. The dividend has shrunk at a rate of less than 1% a year over this period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

CenterPoint Energy May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Although it's important to note that CenterPoint Energy's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 0.9% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think CenterPoint Energy's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. To that end, CenterPoint Energy has 3 warning signs (and 1 which is potentially serious) we think you should know about. 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.