Last update on 2024-06-27

Eversource Energy (ES) - Dividend Analysis (Final Score: 6/8)

Explore Eversource Energy's (ES) Dividend Analysis for 2023, scoring 6/8. Discover how ES's dividends compare in performance, stability, and growth.

Short Analysis - Dividend Score: 6

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

Eversource Energy's (ES) dividend policy was evaluated based on an 8-criteria scoring system. The firm scored 6 out of 8, indicating mostly positive performance. ES has a dividend yield of 4.3746%, which is higher than the industry average of 3.12%, showing strong income returns for investors. The company's dividend growth rate averages 8.16%, exceeding the 5% benchmark, which reflects health and stability. Their payout ratio sits at about 40.36% on average over 20 years, suggesting a good balance between distributing earnings and retaining funds for growth. ES's dividends are mostly covered by its earnings, except for significant lapses in 2005 and 2023 due to specific circumstances. However, the cash flow coverage shows a declining trend, with specific recent years indicating negative free cash flow, pointing to challenges in sustainability. Eversource Energy has consistently paid dividends for nearly 25 years and has demonstrated reliable dividend stability and growth, increasing from $0.575 per share in 2003 to $2.70 per share in 2023. However, the firm did not have a significant track record for stock repurchases over the same period.

Insights for Value Investors Seeking Stable Income

Eversource Energy (ES) appears to be a solid choice for dividend-focused investors given its strong dividend yield, consistent growth rate, and historical stability in dividend payments. The company's ability to maintain a reasonable payout ratio positively reflects its financial prudence. However, investors should be cautious of the declining cash flow coverage and occasional earnings lapses, which might impact the sustainability of future dividends. The lack of significant stock repurchases may also be a concern for those valuing such strategies. Overall, Eversource Energy can be considered a reliable option for dividend income, but it's worth monitoring the mentioned financial pressures and understanding the root causes behind earnings and cash flow variability.

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 compares the annual dividend payment to the current share price, which gives investors a sense of the income generated per dollar invested.

Eversource Energy's (ES) current dividend yield stands at 4.3746%, surpassing the industry average of 3.12%. Over the past 20 years, ES's dividend yield has fluctuated, hitting a low of 2.4752% in 2007 and peaking at 4.3746% in 2023. When we compare these to the industry trends, ES has shown resilience by maintaining relatively high yields. This upward trend, particularly in 2023, signifies stronger or more consistent dividend payouts, making ES an attractive investment for income-focused investors. Coupled with their rising dividend per share, it suggests that ES is committed to returning value to shareholders, which is a good sign for potential investors.

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

The Dividend Growth Rate measures how much a company's dividend payments have increased over time, reflecting the company's financial health and stability. A higher than 5% growth rate is considered positive.

Despite some fluctuations, the average Dividend Ratio from 2003 to 2023 is 8.16%, indicating a solid dividend growth rate for Eversource Energy. Achieving a rate above 5% consistently over 20 years shows financial strength and stability, which is a positive trend for investors.

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

The payout ratio is crucial to determine how much of a company's earnings are distributed to shareholders in the form of dividends.

Examining the payout ratio of Eversource Energy (ES) over the past 20 years shows that the average payout ratio stands at approximately 40.36%. Generally speaking, a payout ratio lower than 65% is deemed healthy as it allows the company to retain sufficient earnings for reinvestment and growth while still providing ample returns to shareholders. The payout ratio has crossed the 65% threshold intermittently but only significantly exceeded it in 2019, and had alarming exceptions in 2005 and 2023 with negative ratios due to presumably extraordinary circumstances. Overall, maintaining an average payout ratio below 65% is favorable for ES, indicating a balanced approach toward dividend distribution and corporate sustainability.

Dividends Well Covered by Earnings?

Dividends being well-covered by earnings refers to the ability of the company to pay dividends out of its net income without compromising financial stability.

Eversource Energy's ability to cover dividends with earnings has shown significant variability over the years. Positive EPS and Dividend Coverage ratios from 2003 to 2022 (except for a few annual dips) indicate a predominantly sustainable dividend payout. The notable anomalies include 2005 and 2023, where EPS fell sharply, leading to extremely low or negative coverage ratios (-0.358 and -2.134, respectively). This suggests occasional but severe lapses in dividend coverage which could be worrisome without any additional context on the causes. Hence, despite mostly positive trends, investors should exercise caution and look for any underlying issues behind EPS shocks.

Dividends Well Covered by Cash Flow?

Dividend coverage by cash flow measures the extent to which a company's free cash flow is able to cover its dividend payments, often expressed as a ratio. It is crucial because it reflects the sustainability of dividend payments without compromising the company's financial health.

The dividend coverage ratio for Eversource Energy (ES) illustrates considerable variability, with positive values indicating sufficient coverage and negative values indicating a shortfall. For instance, in 2003, the ratio was 1.90, which implies robust coverage; however, severe shortfalls are seen back from 2021 (-1.22) to 2023 (-0.34). This declining trend, especially the large negative free cash flows in recent years (-2.69 billion in 2023), indicates a stark challenge in covering dividends from cash generated from operations. The persistent negative values highlight a sustainability issue, and investors should be cautious as the company's capability to uphold its dividend payments appears severely stressed. Possible implications could include the need for external funding or cuts in dividend payouts if free cash flows continue to lag behind dividend commitments.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over a long period indicate reliability and a commitment to returning value to shareholders.

Reviewing Eversource Energy's dividend per share from 2003 to 2023, it's clear that the company has displayed stability and consistency in its dividend payments. Starting at $0.575 per share in 2003, the dividend has steadily increased over the years, reaching $2.70 per share in 2023. The data reveals that there have been no significant drops, let alone a drop exceeding 20%, at any point during this 20-year span. This trend is highly favorable for income-seeking investors as it demonstrates Eversource Energy's commitment to returning wealth consistently to its shareholders. Continual dividend growth underscores financial health and proactive management—key factors reinforcing an investor's confidence in relying on dividends as a steady income source.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years indicates the company's commitment to returning value to its shareholders and signals financial stability.

Eversource Energy (ES) has been paying dividends since at least 1999, consistently increasing its dividend per share from $0.10 to $2.70 in 2023. This steady growth trend demonstrates a strong commitment to shareholder returns and suggests financial stability and profitability. Since the company has paid dividends for 24 years, it has nearly met the 25-year criterion, reflecting positively on its reliability. This trend is indicative of a financially sound company that prioritizes shareholder value, making it an attractive choice for dividend investors.

Reliable Stock Repurchases Over the Past 20 Years?

Why is it important to consider reliable stock repurchases over the past 20 years?

Eversource Energy (ES) did not consistently repurchase shares over the last 20 years. The average repurchase percentage is 5.7837%, predominantly showing periods of increasing shares, reflecting capital raises or acquisitions. Only the years 2017 and 2018 indicated minor repurchases. This trend is not favorable for those valuing buyback programs.