Don't Buy WEC Energy Group, Inc. (NYSE:WEC) For Its Next Dividend Without Doing These Checks

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that WEC Energy Group, Inc. (NYSE:WEC) is about to go ex-dividend in just 3 days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. In other words, investors can purchase WEC Energy Group's shares before the 14th of May in order to be eligible for the dividend, which will be paid on the 1st of June.

The company's next dividend payment will be US$0.8925 per share. Last year, in total, the company distributed US$3.57 to shareholders. Looking at the last 12 months of distributions, WEC Energy Group has a trailing yield of approximately 3.3% on its current stock price of US$107.62. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether WEC Energy Group has been able to grow its dividends, or if the dividend might be cut.

We've discovered 2 warning signs about WEC Energy Group. View them for free.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. WEC Energy Group paid out 66% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether WEC Energy Group generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 227% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

While WEC Energy Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were WEC Energy Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

View our latest analysis for WEC Energy Group

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see WEC Energy Group earnings per share are up 7.3% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, WEC Energy Group has increased its dividend at approximately 8.6% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid WEC Energy Group? Earnings per share have grown somewhat, although WEC Energy Group paid out over half its profits and the dividend was not well covered by free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering WEC Energy Group as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 2 warning signs for WEC Energy Group (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.