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The board of WEC Energy Group, Inc. (NYSE:WEC) has announced that it will be paying its dividend of $0.78 on the 1st of March, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 3.3%, which is in line with the average for the industry.
View our latest analysis for WEC Energy Group
WEC Energy Group's Earnings Easily Cover The Distributions
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, WEC Energy Group's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
Looking forward, earnings per share is forecast to rise by 18.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 61% by next year, which is in a pretty sustainable range.
WEC Energy Group 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 annual payment during the last 10 years was $1.20 in 2012, and the most recent fiscal year payment was $3.12. This means that it has been growing its distributions at 10% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
We Could See WEC Energy Group's Dividend Growing
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. WEC Energy Group has impressed us by growing EPS at 7.4% per year over the past five years. 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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for WEC Energy Group (of which 1 can't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.