Last update on 2024-06-27

Ameren (AEE) - Dividend Analysis (Final Score: 5/8)

Ameren (AEE) dividend analysis scores 5 out of 8, evaluating its performance and stability using an 8-criteria system. Discover comprehensive insights into AEE's dividends.

Short Analysis - Dividend Score: 5

We're running Ameren (AEE) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Ameren (AEE) uses an 8-criteria scoring system to assess the performance and stability of its dividend policy, resulting in a score of 5. Here's how Ameren fared on each criterion: 1. **Dividend Yield**: Ameren's dividend yield of 3.48% is higher than the industry average of 3.12%, making it an attractive option for income-focused investors. 2. **Dividend Growth Rate**: Not specifically mentioned, but critical for assessing consistent profit generation and distribution. 3. **Payout Ratio**: Ameren's average payout ratio of 74.75% over 20 years is above the ideal 65%, indicating potential stress in sustaining dividends during tougher financial periods due to inconsistent earnings. 4. **Dividend Coverage by Earnings**: Recent coverage ratios (~0.57 from 2020 to 2022) indicate earnings haven't been sufficient to cover dividends, raising sustainability concerns. 5. **Dividend Coverage by Cash Flow**: Significant fluctuations with negative coverage (e.g., -52.0 in 2016) suggest instability and potential risk of dividend cuts. 6. **Stable Dividends**: Ameren has had stable dividends without major reductions in recent years, important for income-seeking investors. 7. **Long-Term Dividend Payments**: A consistent dividend-payout history for over 25 years shows financial stability and commitment to returning value to shareholders. 8. **Stock Repurchases**: Inconsistent repurchase strategy, with an average rate of -2.5388%, indicating net dilution rather than buybacks.

Insights for Value Investors Seeking Stable Income

Considering Ameren's track record, the company has a strong dividend yield and a consistent history of dividend payments. However, the high payout ratio, inconsistent earnings to cover dividends, and fluctuating cash flow coverage raise sustainability concerns. The unstable stock repurchase trends further add to the financial strategy worries. If you are a potential investor prioritizing steady income and long-term dividends, Ameren might be worth considering, but watch out for its financial health and ability to sustain current dividend levels in challenging times.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Explain the criterion for Ameren (AEE) and why it is important to consider

Dividend yield measures the ratio of a company's annual dividend compared to its share price, serving as an indicator of the income provided to investors. A higher dividend yield can be attractive to income-focused investors looking for steady cash flows. For Ameren (AEE), its current dividend yield is 3.48%, which is higher than the industry average of 3.12%. This suggests that Ameren may be a better income investment compared to its peers.

Average annual Growth Rate higher than 5% in the last 20 years?

Explain the criterion for Ameren (AEE) and why it is important to consider

The dividend growth rate measures the annualized percentage rate of growth of a company's dividend payments over a specific period. It is a critical criterion for assessing a company's ability to generate and distribute profit to shareholders, reflecting consistency, financial health, and management's commitment to return value to stakeholders.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio is a metric that shows what percentage of a company's earnings is paid out to shareholders in the form of dividends. It's important to consider because a sustainably low payout ratio indicates the company has enough earnings to cover its dividends now and in the future.

The average payout ratio for Ameren (AEE) over the past 20 years stands at approximately 74.75%. However, we notice considerable volatility in the payout ratio over this period, with certain years witnessing ratios well above 100% (2006: 95.47%, 2007: 85.24%, 2008: 88.20%, etc.). For example, in 2010, the payout ratio jumped to an extreme 264.56% and even dipped to -39.85% in 2012. For a utility company like Ameren, which typically aims for stable dividend payments, this higher-than-ideal payout ratio might indicate inconsistent earnings or varying dividend policies. A ratio consistently above 65% might stress the company’s ability to maintain its dividend in tougher financial periods. Overall, the trend can be considered unfavorable because an average payout ratio above the 65% benchmark suggests less capacity for the company’s earnings to support its dividend growth sustainably.

Dividends Well Covered by Earnings?

Taking into account coverage ratios indicates whether the company has sufficient earnings to pay dividends.

Examining Ameren's (AEE) data on earnings per share (EPS) relative to dividend payments highlights key insights into the sustainability of its dividend policy. First, let's look at the company's EPS, which has shown variability over the years, with notable low points in 2010 and 2012. The dividend payments per share, however, have generally exhibited a gradual upward trend. The coverage ratio, which indicates how well earnings cover dividends, has experienced significant fluctuations. For example, in 2012, the negative EPS resulted in a negative coverage ratio (-0.40). More recently, in 2020, 2021, and 2022, the coverage ratios were around 0.57, indicating that earnings were not sufficient to cover dividends. A well-covered dividend typically has a coverage ratio above 1. The recent sub-optimal coverage ratios could be concerning for investors who rely on dividend stability. Conclusively, while dividends have been increasing, the earnings haven't kept pace proportionately, raising potential red flags about the sustainability and future growth of these dividends. Monitoring the company's strategies to improve its earnings is crucial for prospective and current investors.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow measures a firm's ability to pay dividends using the cash it generates. It is essential to avoid relying on external financing.

From 2003 to 2023, Ameren (AEE) shows fluctuations in its ability to cover dividends with cash flow. Positive coverage was achieved initially, peaking at 8.375 in 2015. However, negative trends emerged, notably -52.0 in 2016, indicating reliance on external sources for dividends. This fluctuation suggests instability and potential risk for investors. Ameren's negative figures over the past six years highlight a significant concern, implying that its cash flow generation is insufficient for dividend payments. This trend is unfavorable, indicating a potential risk of dividend cuts or financial strain in the future.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Ameren (AEE) and why it is important to consider.

Stable dividends over the past 20 years refer to the consistency in the amount of dividends paid by the company to its shareholders, without significant reductions. Income-seeking investors prioritize stability in dividends because it reflects the company's steady earnings power and financial health. A reduction of more than 20% could indicate volatility, potential financial distress, or changing prioritization of capital allocation.

Dividends Paid for Over 25 Years?

The criterion of paying dividends for over 25 years indicates the company's commitment to returning value to shareholders and financial stability.

Ameren (AEE) has a consistent history of paying dividends for over 25 years. With dividends per share maintained at $2.54 from 1998 to 2008, a dip to $1.54 from 2009 to 2010 likely reflects broader economic challenges during that period. However, the resurgence and incremental growth in dividends from 2011 onwards, reaching $2.52 in 2023, demonstrate financial recovery and positive growth. The steady increase post-2010, nearly doubling, showcases strong long-term shareholder value. This trend indicates financial stability and a committed dividend policy, which is favorable for current and potential investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

Analyzing the trend in Ameren's stock repurchases reveals an inconsistent pattern over the past 20 years. The years marked for reliable repurchases are 2014, 2015, 2016, 2019, and 2023. The average repurchase rate of -2.5388% indicates a net dilution rather than significant buybacks. This inconsistency might suggest fluctuating financial strategies, impacting shareholder value stability negatively. Not an encouraging trend for potential investors focusing on consistent capital returns.