Stock Analysis

FirstEnergy (NYSE:FE) Has Affirmed Its Dividend Of $0.39

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FirstEnergy Corp. (NYSE:FE) has announced that it will pay a dividend of $0.39 per share on the 1st of March. Based on this payment, the dividend yield will be 3.8%, which is fairly typical for the industry.

See our latest analysis for FirstEnergy

FirstEnergy's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, FirstEnergy's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 1,129% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS is forecast to expand by 29.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 57%, which is in the range that makes us comfortable with the sustainability of the dividend.

NYSE:FE Historic Dividend February 3rd 2023

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 $2.20 in 2013 to the most recent total annual payment of $1.56. This works out to be a decline of approximately 3.4% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that FirstEnergy has grown earnings per share at 56% per year over the past five years. However, FirstEnergy isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for FirstEnergy (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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