Last update on 2024-06-27

CenterPoint Energy (CNP) - Dividend Analysis (Final Score: 4/8)

Analyze the performance and stability of CenterPoint Energy's (CNP) dividend policy with a detailed 8-criteria scoring system. Final Score: 4/8.

Short Analysis - Dividend Score: 4

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

We analyzed CenterPoint Energy (CNP) using an 8-criteria system to assess their dividend performance and stability. The criteria evaluated included their dividend yield, growth rate, payout ratio, earnings, cash flow, stability, history, and stock repurchases over the past 20 years. Highlights from the analysis include: CNP's dividend yield (2.6951%) falling below the industry average (3.12%), with a historical decline over 20 years. The average annual dividend growth rate was inconsistent and slightly declined, while the average payout ratio (46.19%) was comfortably below the desired 65%. Dividends were inconsistently covered by earnings, showing instability, and cash flow coverage was also weak in recent years. Despite this, CNP maintained continuous dividend payments for 25 years but faced a significant drop in 2004 (55%). Stock repurchase trends were also limited and inconsistent.

Insights for Value Investors Seeking Stable Income

Given CenterPoint Energy’s analysis, the dividend yield and growth are not very attractive for income-seeking investors. Volatility in dividend growth and poor coverage by earnings and cash flow pose additional risks. The consistent history of dividend payments is a positive but doesn’t fully offset the concerns. Therefore, while CNP has some strengths, it may not be the best option for investors who prioritize stable and high dividends. Potential investors should proceed with caution and consider diversifying their portfolio to mitigate risks.

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?

Dividend yield represents the annual dividend payment to shareholders as a percentage of the stock price. It is a crucial indicator for income-focused investors as it measures the return on investment from dividends alone.

The dividend yield for CenterPoint Energy (CNP) currently stands at 2.6951%, lower than the industry average of 3.12%. Historically, CNP’s dividend yield has experienced a significant decline over the past 20 years, reaching its peak at 9.2157% in 2003. This downtrend indicates that while the company has increased its stock price from $9.69 in 2003 to $28.57 in 2023, it has not maintained its dividend yield proportionately. Such a trend might be perceived unfavorably by dividend-focused investors, particularly those relying on the yield for income, despite the company's efforts to consistently increase its dividend per share from $0.893 in 2003 to $0.77 in 2023. Hence, this lower dividend yield can be a potential red flag for income-oriented investors.

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

The Dividend Growth Rate criterion measures the annual percentage increase in dividends paid to shareholders over the last 20 years. This is important to assess the company's commitment and ability to return value to its shareholders.

The historical data for CenterPoint Energy (CNP) presents quite a volatile Dividend Growth Rate over the last 20 years, with dramatic rises and falls. Specifically, the values are swinging from -55.2072% in 2004 to +50% in 2006, and even reaching -35.7639% in 2020. These significant fluctuations indicate a lack of consistent growth. The average Dividend Ratio of -0.8145% suggests that on average there has been a slight decline over the past 20 years rather than a growth. This trend is concerning and is a bad indicator for the criterion if we expect a stable growth of greater than 5%. Consistent and growing dividends are generally a sign of a financially healthy and shareholder-friendly company, and the data provided does not meet this standard.

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

The average payout ratio, ideally below 65%, indicates the percentage of earnings a company pays to its shareholders as dividends. A lower payout ratio suggests better sustainability and the ability to reinvest in the business.

The average payout ratio for CenterPoint Energy (CNP) over the last 20 years is 46.19%. This ratio is comfortably below the 65% threshold, indicating a good trend. However, it's important to note significant annual fluctuations, especially in years like 2013 (114.745%) and 2016 (103.5833%), which indicate periods where dividends exceeded earnings. This volatility, partially attributable to extraordinary factors affecting earnings, implies that while CNP generally maintains a sustainable payout ratio, scrutiny of individual years and underlying causes is necessary to understand and potentially address peaks and troughs.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings means the company generates enough profits to comfortably pay its dividends, ensuring sustainability and less risk to the investors.

Examining the figures from 2003 to 2023, we observe variances in the dividend coverage ratio. Ideally, a ratio above 1 is favorable, indicating that the earnings per share (EPS) surpass the dividends per share. Years like 2003 and 2018, at 0.565 and 1.367 respectively, reveal fluctuating performance. Especially in years like 2004 and 2005, where values were negative (-0.161), raise considerable concern over sustainability, showing that EPS were negative, cutting into reserves or increasing debts to pay dividends. The inconsistent numbers denote some years of strength and others of vulnerability. With 2020 at -0.508 and 2022 at 0.416, it's evident that the recent trend emphasizes potential instability. It’s a mixed trend but leaning towards the lower end in ensuring comfortable dividend coverage by earnings.

Dividends Well Covered by Cash Flow?

Examining whether dividends are well covered by cash flow is crucial for understanding a company's financial health and sustainability of its dividend payouts.

CenterPoint Energy's (CNP) dividend coverage by free cash flow over the past 20 years exhibits a mixed trend. In recent years, particularly from 2015 to 2023, free cash flow often fails to cover dividend payouts, with coverage ratios below 1 or negative in several years, indicating insufficient free cash flow to cover dividends. Notably, in 2021 and 2022, the coverage ratios were -0.156 and -0.187, respectively, suggesting that CNP was paying dividends out of debt or other financing activities. Such a trend is concerning as it questions the sustainability of the current dividend payouts. Nonetheless, earlier years, especially 2014 and 2018, show healthy coverage with ratios of 16.32 and 1.85. However, the recent trend of inadequate coverage highlights potential risks for investors relying on dividend income from CNP.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over a long period is an indicator of a company's financial health and management's commitment to returning value to shareholders. It assures investors that the company can generate consistent earnings to support dividend payments.

Assessing CenterPoint Energy's dividend history over the past 20 years reveals that the dividend per share decreased notably during the year 2004 from 2003 (from $0.893 to $0.4). This 55% drop is substantial, suggesting a challenging year for the company. The overall trend from 2004 onward shows incremental increases, signaling recovery and growth over time. However, stability criteria highlight that avoiding drops over 20% is crucial, and in this case, CenterPoint did face a significant dip, indicating some volatility in its dividend payments.

Dividends Paid for Over 25 Years?

CenterPoint Energy's ability to pay dividends consistently for over 25 years.

CenterPoint Energy (CNP) has exhibited a remarkable history of dividend payments stretching from 1998 to 2023, amounting to 25 years of continuous dividends. This consistency is crucial as it provides investors with a sense of stability and reliability. Although there were periods of fluctuating dividends, notably in the early 2000s and again in 2020 and 2021, the company demonstrated a resilient recovery and showed an upward trend afterward. The factors contributing to these fluctuations likely include broader economic conditions, internal financial health, and strategic changes within the company. Nevertheless, their ability to maintain dividend payments for 25 consecutive years stands as a testament to their commitment to returning value to shareholders. This trend is especially reassuring in a volatile market, affirming the company’s reliability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over the past 20 years provide insights into a company's financial health and commitment to returning value to shareholders.

Over the past two decades, CenterPoint Energy (CNP) has exhibited inconsistent stock repurchase behavior. The only years in which shares were repurchased reliably are 2006 and 2015, a mere total of two years out of 20. Such sporadic repurchasing demonstrates a low commitment to a consistent buyback strategy. Given that the number of shares has generally trended upwards, from 306 million in 2003 to 631 million in 2023, there is a predominantly dilutive effect. This indicates potential stock issuances perhaps for reinvestments or to manage debt, which outweighs repurchasing activities. The average share reduction rate being 3.8684 could be seen as negligible in a long-term context. Overall, this suggests that CenterPoint Energy does not prioritize stock repurchases as a key strategy for enhancing shareholder value, which can be perceived as negative by investors seeking returns through buybacks.