National Fuel Gas (NYSE:NFG) Is Increasing Its Dividend To US$0.46

By
Simply Wall St
Published
June 20, 2021
NYSE:NFG
Source: Shutterstock

National Fuel Gas Company (NYSE:NFG) will increase its dividend on the 15th of July to US$0.46. Based on the announced payment, the dividend yield for the company will be 3.5%, which is fairly typical for the industry.

Check out our latest analysis for National Fuel Gas

National Fuel Gas' Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, the dividend made up 187% of earnings, and the company was generating negative free cash flows. 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.

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 47%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

historic-dividend
NYSE:NFG Historic Dividend June 21st 2021

National Fuel Gas Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2011, the first annual payment was US$1.38, compared to the most recent full-year payment of US$1.82. This works out to be a compound annual growth rate (CAGR) of approximately 2.8% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. National Fuel Gas has seen EPS rising for the last five years, at 24% per annum. Although earnings per share is up nicely National Fuel Gas is paying out 187% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

National Fuel Gas' Dividend Doesn't Look Sustainable

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

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for National Fuel Gas that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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This article by Simply Wall St is general in nature. 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.
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