WEC Energy Group (NYSE:WEC) Is Paying Out A Larger Dividend Than Last Year

WEC Energy Group, Inc. (NYSE:WEC) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of March to $0.8925. This takes the annual payment to 3.4% of the current stock price, which is about average for the industry.

See our latest analysis for WEC Energy Group

WEC Energy Group's Payment Could Potentially Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, WEC Energy Group's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 257% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next year is set to see EPS grow by 44.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 62%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

WEC Energy Group Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $1.56 in 2014, and the most recent fiscal year payment was $3.34. This means that it has been growing its distributions at 7.9% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

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. Earnings have grown at around 3.3% a year for the past five years, which isn't massive but still better than seeing them shrink. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

WEC Energy Group's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think WEC Energy Group'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. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for WEC Energy Group (1 can't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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