FirstEnergy's (NYSE:FE) Shareholders Will Receive A Bigger Dividend Than Last Year

FirstEnergy Corp.'s (NYSE:FE) periodic dividend will be increasing on the 1st of December to $0.41, with investors receiving 5.1% more than last year's $0.39. This takes the annual payment to 4.6% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for FirstEnergy

FirstEnergy's Earnings Easily Cover The Distributions

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 any free cash flow would definitely be difficult to keep up.

According to analysts, EPS should be several times higher next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 53% which is fairly sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from $2.20 total annually to $1.56. Doing the maths, this is a decline of about 3.4% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that FirstEnergy has grown earnings per share at 13% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

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. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for FirstEnergy (of which 2 don't sit too well with us!) 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.