Last update on 2024-06-27

NiSource (NI) - Dividend Analysis (Final Score: 5/8)

Explore the performance and stability of NiSource's (NI) dividend policy with our 8-criteria scoring system, achieving a score of 5/8 in 2023.

Short Analysis - Dividend Score: 5

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

The dividend analysis for NiSource (NI) was evaluated across 8 criteria, receiving a score of 5. Key insights include: NiSource's dividend yield of 3.7665% is below the industry average of 5.09%, which may concern income-focused investors. The average annual growth rate of 5.40% is slightly above the 5% threshold, but the high variability suggests inconsistency. The average payout ratio is notably volatile, with several years of negative values, indicating instability. Dividend coverage by earnings and cash flow showed mixed results, with several years of inadequate coverage highlighting potential sustainability concerns. However, NiSource has maintained stable dividends since it began and has a history of paying dividends for over 25 years, reflecting its commitment. The stock repurchase history was not detailed.

Insights for Value Investors Seeking Stable Income

Despite NiSource’s dividend consistency and long history of payments, the numerous fluctuations in payout ratios and coverage by earnings and cash flow suggest possible risks in dividend sustainability. Therefore, while it shows some strengths, the variability in financial performance should make investors cautious. It might be worth considering but not without further scrutiny, especially focusing on financial stability and future earnings potential.

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 is the financial ratio that measures the annualized dividend per share relative to the share price. It provides investors with an indication of how much income they can expect to receive from their investment in the form of dividends. A higher dividend yield may indicate a strong income investment, while a lower yield might suggest growth potential.

NiSource's dividend yield of 3.7665% is currently below the industry average of 5.09%. Historically, NiSource has shown fluctuating dividend yields, peaking at 8.3862% in 2008. In recent years, the yield has been relatively lower, showing a trend of stability, with a slightly increasing trend since 2018. However, it is still lower compared to 2012's and prior yields, but higher than some years like 2013 to 2018. Despite this, a dividend yield below the industry average might be a cause for concern for income-focused investors. Lower yields can sometimes signal higher stock prices, price growth expectations, or less risk, but in this context, it indicates that NiSource does not provide as much immediate income compared to its industry peers.

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

The Dividend Growth Rate indicates how much the dividend payments of a company have increased over time. A consistent growth rate above 5% is usually considered healthy, showcasing the company's strong, steady financial performance and commitment to returning value to shareholders.

The dividend growth rate for NiSource (NI) has been volatile over the last 20 years. The dividend per share ratio shows fluctuations, with negative growth rates in several years like -5.1777% in 2003 and -16.3574% in 2004, and very high positive growth rates in others, such as 68.5792% in 2012. The average growth rate is 5.40%, slightly above the 5% threshold. It indicates that, on average, NiSource has managed to deliver a per year growth rate just above the desired 5% mark, though the volatility in certain years could be a concern for investors looking for stable growth. The trend can be considered marginally good, but the high variability warrants caution.

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

The payout ratio measures the portion of earnings paid out as dividends to shareholders. A ratio under 65% generally indicates a company is retaining enough earnings to invest in growth opportunities while still rewarding shareholders. This balance is essential for long-term financial health and dividend sustainability.

The average payout ratio for NiSource (NI) over the last 20 years is -59.83%, which is highly unusual and indicates extreme fluctuations, including negative values, most notably -549.68% in 2018 and -1834.06% in 2020. These anomalies suggest periods of significant net losses. The frequent negative payout ratios reflect an unstable dividend payout policy and are not in line with the standard of keeping the ratio under 65% for sustainability. Such volatility and extreme values in payout ratio are a red flag, indicating the company may not consistently generate sufficient net income to cover its dividends. This trend is bad, as it questions the reliability and sustainability of NiSource's dividend payments.

Dividends Well Covered by Earnings?

Dividends being well-covered by earnings is essential as it indicates the company's earning power is resilient enough to support dividend payouts. This sustainability is critical for long-term investors seeking consistent returns.

Analyzing the historical dividend coverage ratio of NiSource (NI), several insights can be derived. NiSource has experienced fluctuations in its earnings coverage over the years. For instance, in years like 2003 and 2006, the company showed strong coverage ratios of 1.32 and 1.26, respectively, suggesting good coverage. However, in years with negative earnings such as 2018 and 2020, coverage was significantly negative, highlighting potential sustainability issues. Most recent data for 2023 shows a decent coverage ratio of 0.58, indicating that the company is gradually stabilizing its ability to cover dividends using its earnings. However, consistency over a longer period would be a better indicator of reliability.

Dividends Well Covered by Cash Flow?

The criterion of dividends well covered by cash flow examines whether the company's free cash flow is sufficient to cover its dividend payouts. It is important because it shows the sustainability of the dividend payments without resorting to debt or external financing.

NiSource (NI) exhibits a rather volatile and concerning trend when it comes to covering its dividends with free cash flow. Over the span of 21 years from 2003 to 2023, the company had several years with negative free cash flow, indicating a struggle to support its dividend payments from operational cash generation. Specifically, out of 21 years, only four years (2004, 2005, 2006 & 2015) had positive coverage ratios of 0.48, 2.05, 0.49, and 2.74 respectively, highlighting frequencies where cash flow exceeds dividend payouts considerably. In most other years, the company had negative coverage ratios, such as -8.1 in 2007 and -1.62 in 2019, indicating that the dividend payments were made out of potentially borrowed funds or reserve cash. This trend is not favorable since it reflects potential financial instability and raises doubts about the long-term sustainability of NiSource's dividend policy. Investors should be wary of the company's ability to consistently deliver dividends given its diverse cash flow issues over the years.

Stable Dividends Since the Company Began Paying Dividends?

A stable dividend payout assures income-seeking investors of a consistent income stream. An evaluation of dividend history over the past two decades for NiSource (NI) is necessary to ensure that the company hasn't experienced significant reductions (such as a drop greater than 20%) in its dividend per share, which could indicate financial instability or strategic shifts away from returning capital to shareholders.

NiSource (NI) has demonstrated stability in its dividend payments over the past 20 years. From 2003, the dividend per share was $0.4322, with fluctuations within a nominal range over the subsequent years. Notably, the dividend per share showed marked increases from 2013 ($0.6093) onward, reaching $1.00 in 2023. No single year exhibited a drop of more than 20% in dividends per share. The highest dip observed was between 2003 ($0.4322) and 2004 ($0.3615), a decrease of 16.4%, still within the acceptable threshold. Thus, the dividends have remained relatively consistent without excessive volatility, which is a positive indicator for income-focused investors.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years refers to whether the company has consistently paid dividends to its shareholders for a period longer than 25 years. This is essential as it demonstrates the company's stability, profitability, and shareholder-friendly approach over a significant period.

NiSource (NI) has a track record of consistently paying dividends for over 25 years. Starting from $0.3772 per share in 1998, the dividend has shown remarkable growth, reaching $1 per share in 2023. This long-term commitment to dividend payments illustrates NiSource's financial stability and dedication to returning value to its shareholders. The increasing trend in dividend payments, especially the robust increases from 2014 onwards, suggest a strong and potentially growing profitability outlook, which is positive for long-term investors.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for NiSource (NI) and why it is important to consider

A reliable stock repurchase program is a sign of a financially healthy company that is committed to enhancing shareholder value. It indicates that the company consistently generates more cash than needed for its operating expenses and investment opportunities, thus it returns the excess to its shareholders. This could also demonstrate a company's confidence in its own future potential and stock valuation. Additionally, share repurchases reduce the number of outstanding shares in the market, which can increase the earnings per share (EPS) and, consequently, the stock price.