FirstEnergy (NYSE:FE) Is Due To Pay A Dividend Of $0.41

FirstEnergy Corp.'s (NYSE:FE) investors are due to receive a payment of $0.41 per share on 1st of March. This will take the annual payment to 4.3% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for FirstEnergy

FirstEnergy's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the dividend made up 164% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

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 annual payment during the last 10 years was $2.20 in 2014, and the most recent fiscal year payment was $1.64. The dividend has shrunk at around 2.9% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, FirstEnergy has only grown its earnings per share at 2.7% per annum over the past five years. The earnings growth is anaemic, and the company is paying out 164% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

FirstEnergy's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think FirstEnergy will make a great income stock. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for FirstEnergy (2 are a bit concerning!) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.