Last update on 2024-06-27

Entergy (ETR) - Dividend Analysis (Final Score: 8/8)

Explore Entergy Corporation (ETR) dividend analysis scoring a perfect 8/8 for dividend stability, growth, and sustainability. A must-read for income-focused investors.

Short Analysis - Dividend Score: 8

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

The dividend analysis of Entergy (ETR) using an 8-criteria scoring system reveals several key insights. Entergy's dividend yield of 4.289% is higher than the industry average, making it attractive to investors despite some stock price fluctuations. While its average annual dividend growth rate has shown significant variability and did not consistently exceed 5%, the company has maintained a lower average payout ratio, suggesting financial prudence. However, there have been issues with dividend coverage by both earnings and free cash flow, indicating volatility and potential sustainability concerns. Despite these issues, Entergy boasts over two decades of consistent dividend payments without major drops, demonstrating strong stability. Reliable stock repurchases further underscore the company’s commitment to shareholder returns.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Entergy (ETR) shows both strengths and weaknesses. The attractive dividend yield and long track record of payments make it appealing for income-focused investors. However, inconsistency in dividend growth and issues with coverage by earnings and cash flow signal potential risks. Investors should consider these factors carefully. If stability and history are paramount, ETR is worth considering, but if you're concerned about future consistency, it may be wise to look deeper or consider diversification.

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 measures the ratio of a company's annual dividend compared to its share price. It indicates how much cash flow investors are getting for every dollar invested in an equity position. A higher dividend yield can attract income-focused investors but may also indicate potential risks.

Entergy's current dividend yield of 4.289% surpasses the industry average of 3.12%, reflecting a relatively attractive return for investors. Historically, ETR has generally maintained a higher yield compared to the industry, with a remarkable peak of 5.2474% in 2013. This suggests strong cash returns over time, supported by steady dividend per share increments from $1.6 in 2003 to $4.34 in 2023. However, the stock price has fluctuated, notably declining from its 2007 peak of $119.52 to $101.19 in 2023. The sustained higher yield appears favorable, indicating reliability and growth potential in dividends for investors, offset by stock price volatility.

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

Evaluates the growth consistency of the company's dividend payout over a long period.

Entergy's (ETR) Dividend Growth Rate over the past 20 years has shown significant variation. Although the Average Dividend Ratio is 5.968%, data reveals years with no dividends (2006, 2009, 2010-2014). Despite an upward trend after 2012, this inconsistency, highlighted by a drop in 2023, is concerning. Investors should thoroughly assess ETR's dividends history for confidence in future payouts. Hence, ETR's dividend growth does not demonstrate a reliable exceeding of 5% growth rate.

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

Explain the criterion for Entergy (ETR) and why it is important to consider

An average payout ratio lower than 65% indicates a company's capacity to pay out dividends from its earnings without overly straining the company's financially. It ensures that a sizeable portion of earnings is retained in the company for reinvestment and growth, which is crucial for sustainability, especially for energy companies with significant infrastructural investments.

Dividends Well Covered by Earnings?

The criterion evaluates whether a company generates enough profit to cover its dividend payouts. A ratio above 1 usually indicates that the dividends are well covered.

Over the examined period from 2003 to 2023, Entergy's (ETR) dividend coverage ratio varied significantly. In years like 2015 and 2016, the ratio dips into negative due to substantial losses, and hence the dividends are not covered by earnings. However, in 2023 and some other years, the coverage ratio is close to or above 1, indicating well-covered dividends. The fluctuating ratio implies volatility in earnings, raising caution about the firm's ability to consistently cover dividends. This trend is detrimental for income-focused investors who seek reliable dividend payments supported by robust earnings.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow is important because it indicates the company's ability to sustain its dividend payments from its core business operations.

Analyzing Entergy's free cash flow (FCF) and its dividend payout from 2003 to 2023, we see a worrying trend. The ratio of FCF to dividend payout has been negative for several years, specifically from 2011 onwards, meaning that Entergy has been generating less cash flow than it needs to pay its dividends. For instance, in 2023, the ratio was -2.24, reflecting a FCF of -$417 million against a dividend payout of $936 million. This trend is unsustainable and problematic, indicating that Entergy has been relying on non-operational funds or debt to maintain its dividends, which could be a red flag for investors. Positive ratios observed in earlier years, e.g., 2007 with a ratio of 2.25, where FCF substantially covered dividends, were much more favorable.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Evaluating the stability of Entergy's (ETR) dividend over the past 20 years reveals a commitment to maintaining and even incrementing payouts to shareholders. Reviewing the data from 2003 through to 2023, Entergy exhibited a robust growth trajectory in its dividends per share (DPS). Starting from a dividend of $1.60 in 2003, the company managed to progressively elevate this figure to $4.34 by 2023. Nonetheless, to determine if any individual year experienced a drop of more than 20%, it's crucial to inspect the data closely. Between 2006 and 2007, there was a noticeable lift from $2.16 to $2.58, and similarly from 2007 to 2008, dividends rose further to $3.00. Entergy's ability to navigate the tumultuous 2008 financial crisis without slashing its dividend exemplifies solid fiscal management. No critical drop greater than 20% was noted within this span, affirming Entergy's capacity to deliver consistent returns to its shareholders. This consistency is particularly beneficial for income-seeking investors who prioritize reliable and predictable dividend income. Overall, with a trend marked primarily by increases or stable payouts, Entergy showcases strong dividend stability, ultimately favoring stakeholder confidence and reinforcing its credibility within the dividend-paying community.

Dividends Paid for Over 25 Years?

Analyzing how consistently a company has paid dividends over a span of more than 25 years is critical. It illustrates the firm's long-term financial health and its commitment to returning value to shareholders.

Entergy (ETR) has paid out dividends consistently from 1998 through 2023. Over these 25 years, the dividend per share has grown from $1.5 in 1998 to $4.34 in 2023. This continuous and robust increase indicates a resilient financial footing and a dedication to shareholder returns. The trend is exceptionally positive, highlighting the company's capability to sustain and grow its dividends, which bodes well for long-term investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases

The number of shares has decreased from 231.15 million in 2003 to 211.57 million in 2023. The most notable reductions occurred between 2005 to 2010 and in 2015 and 2016. On average, the share count declined by -0.3946% per year over the last 20 years. This trend demonstrates Entergy's consistent focus on enhancing shareholder value through buybacks, which is a positive indicator for investors.