FirstEnergy's (NYSE:FE) Dividend Will Be Increased To $0.445

FirstEnergy Corp.'s (NYSE:FE) periodic dividend will be increasing on the 1st of June to $0.445, with investors receiving 4.7% more than last year's $0.425. This takes the annual payment to 4.3% of the current stock price, which is about average for the industry.

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FirstEnergy's Future Dividend Projections Appear Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before this announcement, FirstEnergy was paying out 99% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Looking forward, earnings per share is forecast to rise by 75.8% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 58% which brings it into quite a comfortable range.

View our latest analysis for FirstEnergy

FirstEnergy Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the annual payment back then was $1.44, compared to the most recent full-year payment of $1.70. This works out to be a compound annual growth rate (CAGR) of approximately 1.7% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, FirstEnergy's EPS was effectively flat over the past five years, which could stop the company from paying more every year. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. This gives limited room for the company to raise the dividend in the future.

FirstEnergy's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think FirstEnergy's payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

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. For example, we've picked out 2 warning signs for FirstEnergy that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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