Last update on 2024-06-27

FirstEnergy (FE) - Dividend Analysis (Final Score: 4/8)

In-depth analysis of FirstEnergy (FE) assesses the dividend performance and stability using an 8-criteria scoring system. Final Score: 4/8.

Short Analysis - Dividend Score: 4

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

FirstEnergy (FE) was evaluated using an 8-criteria system to check the performance and stability of its dividend policy. Here's a brief rundown of the findings: 1. **Dividend Yield**: FirstEnergy's current yield of 4.3099% is higher than the industry average of 3.12%, making it attractive for income-focused investors. 2. **Dividend Growth**: The 20-year average growth rate of -0.9586% is far below the desired 5%, indicating unstable payouts. 3. **Payout Ratio**: The average payout ratio is 88.31%, which is higher than the preferred 65%, indicating financial risk. 4. **Earnings Coverage**: Dividends were often not well covered by earnings, leading to concerns about the sustainability of payouts. 5. **Cash Flow Coverage**: Cash flow consistently fell short of covering dividends, highlighting potential financial instability. 6. **Dividend Stability**: Dividends dipped significantly in 2014 but have since stabilized. 7. **History of Payments**: FirstEnergy has been paying dividends for over 25 years consistently. 8. **Stock Repurchases**: Consideration of stock repurchases was noted, but detailed analysis wasn't provided. Overall, the stability and long history of payments are positive, but high payout ratios and insufficient cash flow coverage are red flags. Recommendation:

Insights for Value Investors Seeking Stable Income

Based on the analysis, FirstEnergy exhibits both strengths and weaknesses in its dividend policy. The high dividend yield and long history of payments are attractive features. However, the low dividend growth rate, high payout ratio, frequent lack of earnings and cash flow coverage paint a picture of financial instability. For investors prioritizing stable and growing dividends, it might be worth being cautious. Detailed financial stability and future earnings prospects should be scrutinized before making investment decisions. If risk tolerance is high and the attractive yield is compelling, it could still be worth considering. It may be beneficial to diversify and not rely solely on FirstEnergy for income.

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, expressed in percentage, is the annual dividend payment divided by the stock price. It is essential as it indicates the income return an investor would earn from holding the stock, which is particularly crucial for income-focused investors.

FirstEnergy (FE) currently offers a dividend yield of 4.3099%, substantially higher than the industry average of 3.12%. Over the last 20 years, FE's yield has fluctuated, peaking at 6.6707% in 2013 and dropping to a low of 2.7647% in 2007. This variability can be attributed partially to changes in stock price, which has ranged from $30.61 in 2020 to $72.34 in 2007. Most years have seen yields above the industry average, making FE an attractive option for income-focused investors. Overall, this trend is positive as it indicates that FE consistently provides a higher income return compared to its industry peers, contributing to its appeal for dividend investors.

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

The Dividend Growth Rate is a crucial metric that indicates the yearly percentage increase in a company's dividend payouts. A higher growth rate suggests stronger financial health and commitment to returning value to shareholders.

Examining FirstEnergy's dividend per share ratio from 2003 to 2023 reveals a highly volatile pattern with years of no payout and even negative values. For example, in 2011 there was a notable 25% payout but it turned negative in 2012 with -20%, followed by -34.5455% in 2014. This volatility severely impacts the dividend growth rate, which averages 0.9596%, far below the 5% growth criterion. Consequently, FirstEnergy does not meet the desirable dividend growth rate threshold, indicating unstable dividend policies and possibly underlying financial inconsistency, which could be a red flag for dividend-focused investors.

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

The payout ratio measures the proportion of earnings a company distributes to its shareholders in the form of dividends. It is calculated by dividing the dividend per share by the earnings per share (EPS). A payout ratio lower than 65% is generally considered sustainable and indicates that the company is retaining enough earnings to fund growth opportunities and cushion against economic downturns.

The average payout ratio for FirstEnergy over the last 20 years stands at approximately 88.31%, significantly higher than the ideal threshold of 65%. This trend suggests a higher financial risk as the company might be over-distributing its earnings, thereby compromising future growth prospects and buffer against potential downturns. With variations wherein the payout ratio exceeded 100% in several years, notably 2022 (219.41%) and 2013 (235.14%), it signals potential strains on its ability to sustainably maintain its dividend payments. This could be a red flag for long-term dividend investors who prioritize steady and safe dividend payouts.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings measures whether the company's earnings are sufficient to cover its dividend payouts. This metric is crucial because it reflects the company's ability to sustain dividends without needing to dip into reserves or acquiring further debt, indicating financial health and stability.

The trend in FirstEnergy's EPS and dividends per share reveals a checkered history. From the period of 2003 to 2013, there are fluctuations in the EPS which directly affects how well covered the dividends are. Notably, in 2011, EPS was 0.9356 while dividends were 2.2 per share, leading to earnings covering dividends at a mere 0.9356/2.2 ≈ 0.43, meaning dividends were not covered by earnings. The most striking situation was in 2016 when EPS was -14.5, deeply in the red, rendering dividends totally uncovered. Recent years have shown some improvement, with EPS of 1.9232 in 2023 and dividends holding steady at 1.58 per share, improving the coverage ratio to approximately 0.82 (1.9232/1.58). While better than in years past, this demonstrates the company's continued struggle to comfortably cover dividends with earnings. Overall, periods of insufficient coverage indicate potential risk for dividend sustainability especially during low EPS years as seen in 2014 through 2017, and some slight volatilities again in the 2020-2022 timeframe.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow means the company has sufficient free cash flow (or FCF) to cover its dividend payments. It's important as it reflects the company's ability to sustain dividend payments without compromising its financial stability. A ratio above 1 indicates the company generates sufficient FCF to cover dividends.

Analyzing the free cash flow and dividend payout from 2003 to 2023, FirstEnergy shows fluctuating coverage ratios. Particularly alarming years include 2008, 2012-2014, 2018-2019, with ratios significantly below 1 due to negative FCF. Years like 2007, 2009, 2015-2017 have excellent ratios. However, the recent steady coverage around 0.3-0.65 (2021-2023) suggests insufficient FCF to fully cover dividends. Consistent inability to cover dividends by FCF might signal financial instability or over-distribution.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments over the past 20 years is key for income investors, avoiding significant drops offering certainty.

FirstEnergy (FE) has generally displayed stable dividend payments over the last 20 years. The company did experience a notable reduction in its dividend per share in 2014, from $2.2 to $1.44, a reduction of about 34.55%. This is the most significant drop observed and did exceed the 20% threshold. However, the dividend payment has remained stable since then, with slight incremental increases, for example from $1.52 in 2019 to $1.58 in 2023. Despite this history, the stability and slight growth in recent years could be seen as a positive recovery trend, although it underlines potential risks associated with similar cuts in the future. Thus, while recent dividends exhibit stability, there is some cause for caution due to the significant drop in 2014.

Dividends Paid for Over 25 Years?

This criterion evaluates if the company has consistently paid dividends for over a quarter-century. Consistent dividend payments are often a sign of a healthy and stable company.

FirstEnergy (FE) has demonstrated a solid history of paying dividends consistently for the past 25 years. The data shows a steady payout ranging from $1.5 in 1998 to $1.58 in 2023. Despite occasional changes in the dividend per share, including a peak of $2.75 in 2011 and a significant drop to $1.44 in 2014, the company has maintained dividend payments without interruption. This consistent history of dividend payments indicates financial stability and a commitment to returning value to shareholders, which is a positive trend.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for FirstEnergy (FE) and why it is important to consider

Reliable stock repurchases are a sign of strong and efficient capital allocation policy by a company. This can enhance shareholder value by reducing the number of shares outstanding, which in turn increases earnings per share and potentially the stock price. The reliability of stock repurchases over a long period also demonstrates consistency in the company's financial performance and commitment to its shareholders.