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Xcel Energy Inc. (NASDAQ:XEL) will increase its dividend on the 20th of April to $0.57, which is 4.1% higher than last year's payment from the same period of $0.548. This makes the dividend yield about the same as the industry average at 3.0%.
View our latest analysis for Xcel Energy
Xcel Energy's Projected Earnings Seem Likely To Cover Future Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Xcel Energy's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Over the next year, EPS is forecast to expand by 29.2%. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.
Xcel Energy Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from $1.20 total annually to $2.19. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year 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. However, Xcel Energy has only grown its earnings per share at 5.0% per annum over the past five years. Xcel Energy is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Xcel Energy will make a great income stock. While Xcel Energy is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
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 Xcel Energy (1 doesn't sit too well with us!) that you should be aware of before investing. 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.