Last update on 2024-06-27

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

Analyzing NRG Energy's dividend policy using an 8-criteria system to assess stability and performance. Final Score: 4/8.

Short Analysis - Dividend Score: 4

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

The dividend analysis of NRG Energy uses an 8-criteria system and results in a score of 4. Here's a brief overview of each criterion: 1. **Dividend Yield**: NRG’s current 2.9246% yield is slightly below the industry average. Historically, it's been variable, reflecting unstable earnings and stock prices. 2. **Dividend Growth Rate**: Over the past 20 years, there's been significant inconsistency. Despite occasional spikes, the growth is volatile and not stable. 3. **Payout Ratio**: The 20-year average payout ratio is very low at 1.68%, but large fluctuations over the years indicate volatility in earnings. 4. **Dividend Coverage by Earnings**: The coverage is irregular, with many years showing poor or negative coverage, raising sustainability concerns. 5. **Dividend Coverage by Cash Flow**: This has also been volatile, with several years where cash flow couldn't cover dividends. 6. **Stable Dividends**: Since 2012, dividends have been unstable, with significant drops more than once—raising reliability concerns for income investors. 7. **History of Dividend Payments**: NRG has only 10 years of dividend-paying history, far short of the desired 25 years. 8. **Stock Repurchases**: Frequent stock buybacks suggest management's confidence in the company's future, despite a few years of increased shares indicating additional financing needs.

Insights for Value Investors Seeking Stable Income

NRG Energy's dividend policy shows mixed results. While the company has a history of consistent payments over the last decade and frequently repurchases stocks, it faces significant volatility in dividend growth, earnings coverage, and overall stability. If you prioritize stable and predictable income from dividends, this stock may carry some risks that warrant caution. However, for investors with a higher risk tolerance seeking potential growth and who can leverage periods of stock buybacks, NRG Energy might present an interesting but speculative opportunity. Further detailed analysis and consideration of personal investment goals are advised before making a decision.

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 a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is an essential indicator for investors seeking income through dividends. A higher dividend yield suggests higher income for investors, but it should also be sustainable.

NRG Energy (NRG) has a current dividend yield of 2.9246%, which is slightly lower than the industry average of 3.02%. Examining the historical data over the last 20 years, NRG's yield has shown significant variability, spiking to 4.9278% in 2015, and achieving lower levels at different times. The variance in dividend yield indicates fluctuations not only in dividend payouts but also possibly in stock price trends. For instance, noteworthy dips occurred in 2018 and 2019, where dividend yield levels fell below 1%. Despite the downward trend in the current year compared to the last two years (4.3997% in 2022 and 3.0176% in 2021), NRG has managed consistent dividend payments, evidenced by an increase in dividends per share year on year recently. This suggests a commitment to returning value to shareholders, although the current yield being under the industry average can be seen as a slight negative for potential investors focusing mainly on yield. Nevertheless, its historical resilience in fluctuating markets shows potential for future yield growth, contingent on improved earnings and more stable stock prices. To summarize, while the trend is decent in displaying NRG's commitment to dividends, its current yield just under the industry average dampens the positivity a bit.

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

The Dividend Growth Rate criterion analyzes the rate at which a company's dividend payments increase over a specified period, ideally over the last two decades. It helps in assessing the company's financial health and its commitment to returning value to shareholders.

Based on the given data about NRG Energy's dividend per share ratio over the past 20 years, it is evident that there are inconsistencies. For the initial ten-year period (2003-2012), the company did not pay any dividends. The significant spike in 2013 (150) followed by fluctuating and mostly negative growth rates between 2014-2017, and another spike in 2020 (900) followed by much lower rates in subsequent years indicates volatility. The sharp fluctuations and inconsistency suggest that NRG Energy does not show a stable and higher-than-5% dividend growth rate over the last 20 years. The average dividend ratio of approximately 47.29% is skewed by these spikes, masking underlying volatility. This trend is not favorable for yield-focused, long-term dividend investors who prefer steady and predictable dividend income growth.

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

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

The provided data for NRG Energy (NRG) reflects that the average payout ratio across the past 20 years stands at approximately 1.68%. The importance of the payout ratio when evaluating dividend stocks cannot be overstated. A payout ratio measures the proportion of earnings a company pays its shareholders in the form of dividends. Typically, a payout ratio below 65% is seen as sustainable, indicating that the company is retaining enough earnings for growth, debt reduction, or handling unexpected expenses. In this case, NRG Energy's average payout ratio of 1.68% indicates considerable prudence in their dividend disbursements. However, it is crucial to delve deeper as payout ratios have fluctuated drastically across the years, with numbers ranging from 136.61% to negative figures. The negative values and excessively high percentages hint at volatile earnings or erratic dividend policies in certain periods. Despite this fluctuation, the overall average payout ratio is impressively low, which is a positive indicator.

Dividends Well Covered by Earnings?

Dividends should ideally be covered by the company's earnings, measured via the Dividend Coverage Ratio (DCR). It is typically calculated by dividing Earnings Per Share (EPS) by Dividend Per Share (DPS). A DCR greater than 1 indicates that the company generates enough earnings to cover the dividends paid, which is a positive signal to investors.

The data provided reveals a fluctuating trend in NRG Energy's ability to cover its dividends with its earnings. For example, in 2012 the DCR was significantly low at approximately 0.075, suggesting poor dividend coverage. Many values are negative, particularly in 2023 where the DCR is -1.7065, indicating that the company is paying dividends despite negative earnings, which is unsustainable long-term. Positive values like in 2014 and 2021 demonstrate some instances of adequate coverage. However, this inconsistency raises concerns for potential investors.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow refers to the capacity of a company to cover its dividend payouts with its free cash flow. If dividends consistently are well-covered by free cash flow, it signals the sustainability of the dividend payments.

The trend shows that NRG had very volatile coverage of its dividends by cash flow over the years with several years of negative coverage (e.g., -0.666 in 2005, -0.007 in 2011, -0.214 in 2013, and -0.451 in 2023) where free cash flow was insufficient to cover dividends. A few years managed high or decent coverage (e.g., 7.73 in 2015 and 1.42 in 2021). Such volatility is concerning and signals inconsistent capability to sustain dividend payments.

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 trend of dividends per share for NRG Energy (NRG) over the past 20 years reveals a few critical issues. From 2003 to 2012, the company did not pay any dividends. Introduction of dividends commenced in 2012 with a modest $0.18 per share, escalating to $1.512 by 2023. The period from 2012 to 2013 saw a substantial increase from $0.18 to $0.45, reflecting robust growth in shareholder rewards. 2015 to 2016 exhibits a marked decrease in dividends from $0.58 to $0.235, almost a fall of 60%, which signals a potentially worrisome situation for investors relying on stable dividend income. Another noteworthy decrease is from 2015 to 2018, but the payment escalated substantially from 2018 onwards, growing constantly thereafter. Overall, dividends for the corporation show a tendency towards rising with several critical lapses of decrease exceeding 20%, particularly in 2015 to 2016, potentially worrying for stable income-oriented investors. However, post-2018 resurgence offers a more stable outlook. Hence this trend is mixed, with both promising growth and unsettling vulnerabilities leading to a conclusion that NRG shows an overall mixed stability in dividends for income seekers.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years looks at whether the company has a long history of consistently paying dividends, which can indicate financial stability and shareholder commitment.

Based on the data from 1998 to 2023 for NRG Energy (NRG), we see that there were no dividends paid from 1998 to 2012. The company began issuing dividends in 2013, starting with $0.18 per share, gradually increasing to $1.512 per share by 2023. This means NRG has around 10 years of dividend payment history—falling short of the 25-year criterion. While it is positive to see consistent annual increases in dividend per share from 2013 onwards, NRG does not yet meet the stringent criterion of having paid dividends for over 25 years. This trend indicates some commitment to shareholders and potential for growth, but the limited history might make conservative investors wary. Diversified strategies, robust dividend growth, and the recent upward trend may encourage some investor confidence.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases refer to the consistency in a company's actions to buy back its own shares which usually indicates management's belief that the stock is undervalued and can also help to increase EPS.

NRG Energy has demonstrated a consistent pattern of stock repurchases over the past 20 years, with noticeable buybacks in 14 of those years, which translates to an average repurchase of 2.117 times per year. This trend is predominantly good because regular buybacks often signify that the company believes in its own value; additionally, these reduce the total outstanding shares, potentially boosting earnings per share (EPS) and shareholder value. However, NRG Energy also had some years, such as 2004 and 2014, where the number of shares increased, which might suggest additional financing activities or equity raises during those periods. Overall, the frequent repurchases indicate strong confidence from management in the company's future performance and a continual effort to return value to shareholders.