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Sempra (NYSE:SRE) will increase its dividend from last year's comparable payment on the 15th of April to $0.645. The payment will take the dividend yield to 3.6%, which is in line with the average for the industry.
View our latest analysis for Sempra
Sempra's Projected Earnings Seem Likely To Cover Future Distributions
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Sempra's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. 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.
Over the next year, EPS is forecast to expand by 25.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.
Sempra Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $1.32 in 2015 to the most recent total annual payment of $2.58. This means that it has been growing its distributions at 6.9% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Sempra Could Grow Its Dividend
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Sempra has grown earnings per share at 7.3% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
Our Thoughts On Sempra's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.
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. Just as an example, we've come across 3 warning signs for Sempra you should be aware of, and 1 of them can't be ignored. Is Sempra 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.