FirstEnergy (NYSE:FE) Is Paying Out A Dividend Of $0.39

FirstEnergy Corp.'s (NYSE:FE) investors are due to receive a payment of $0.39 per share on 1st of September. This payment means the dividend yield will be 4.0%, which is below the average for the industry.

See our latest analysis for FirstEnergy

FirstEnergy's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 52%, which is in a comfortable range for us.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut 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. Doing the maths, this is a decline of about 3.4% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

FirstEnergy's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that FirstEnergy has been growing its earnings per share at 23% a year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Strong earnings growth means FirstEnergy has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think FirstEnergy is a great stock to add to your portfolio if income is your focus.

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. To that end, FirstEnergy has 3 warning signs (and 2 which are concerning) we think you should know about. Is FirstEnergy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.