Sempra's (NYSE:SRE) Upcoming Dividend Will Be Larger Than Last Year's

Sempra (NYSE:SRE) will increase its dividend from last year's comparable payment on the 15th of April to $0.645. Based on this payment, the dividend yield for the company will be 3.6%, which is fairly typical for the industry.

See our latest analysis for Sempra

Sempra's Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Sempra's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 25.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.

Sempra Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $1.32 in 2015 to the most recent total annual payment of $2.58. This implies that the company grew its distributions at a yearly rate of about 6.9% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Sempra Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Sempra has seen EPS rising for the last five years, at 7.3% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Sempra is earning enough to cover the payments, the cash flows are lacking. 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. Just as an example, we've come across 3 warning signs for Sempra you should be aware of, and 1 of them is significant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.