Last update on 2024-06-27

Xcel Energy (XEL) - Dividend Analysis (Final Score: 6/8)

Analyze Xcel Energy (XEL) dividend performance with a detailed 8-criteria scoring system. Final score: 6/8, highlighting stability and growth indicators.

Short Analysis - Dividend Score: 6

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

This analysis covered Xcel Energy's (XEL) dividend policy using eight different criteria. Firstly, Xcel Energy has a current dividend yield of 3.3597%, above the industry average, showing great value. From 2003 to 2023, the annual dividend growth fluctuated, averaging 3.61%, which is below the desirable 5%. Their payout ratio often nears the 65% threshold, indicating balanced profit distribution. Unfortunately, dividends are poorly covered by the company’s cash flow, showing potential instability. Conversely, their dividends have been paid and mostly stable for over 25 years. However, stock repurchases have been rare, highlighting a less robust capital allocation strategy.

Insights for Value Investors Seeking Stable Income

Given the strong dividend yield and consistent payout history, Xcel Energy’s stock might be worth considering. However, the fluctuating dividend growth and poor cash flow coverage are red flags. If you prioritize stable cash flows and consistent dividend growth, you may want to scrutinize further or consider alternative stocks. Evaluating Xcel Energy's financial strategies and future plans could provide more insights.

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 annual dividends paid out by a company as a percentage of its stock price. It is essential for income-focused investors as it provides an overview of the return generated solely from dividends.

Xcel Energy's current dividend yield is 3.3597%, which is above the industry average of 3.12%. Historically, Xcel Energy has oscillated around higher yields, particularly during the past financial uncertainties, notably in 2008 (5.0889%). Despite fluctuations, today's yield demonstrates robust value, especially given the rise from its 2020 low (2.5799%). This upward trend displays a positive move toward rewarding shareholders more prominently and suggests that Xcel Energy is maintaining a well-above-average dividend distribution, which is appealing against the industry backdrop. Notably, the rise in dividend per share from $0.752 in 2003 to $2.08 in 2023 underlines consistent dividend payment growth. This trend is favorable for investors looking for reliable income.

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

Dividend Growth Rate is an essential measure of a company's ability to increase its dividend payments to shareholders over time. Consistent growth above inflation rates, typically above 5%, indicates a healthy and potentially rewarding investment. Evaluating this over 20 years gives a long-term perspective on management's confidence and the company's financial health.

The dividend growth rate for Xcel Energy (XEL) over the last 20 years shows periods of significant volatility, with most years posting positive growth. However, the dramatic dips in 2003 and 2014, coupled with only a few exceptional years (e.g., 2013's 29.91% growth), bring the average to 3.61%, below the desired 5%. This indicates an inconsistent ability to grow its dividends, suggesting occasional financial instability or strategic investment variability. Although the overall trend is mildly upward, it is insufficient for a robust long-term dividend growth strategy, hence it's a mildly concerning indication for dividend-focused investors.

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

Assessing whether the average payout ratio is lower than 65% over the last 20 years is crucial as it indicates the company's ability to sustain its dividend payments. A high payout ratio might suggest a lack of profitability or poor capital allocation management.

The average payout ratio for Xcel Energy (XEL) over the last 20 years stands at 64.663%, which is remarkably close to the threshold of 65%. Over these years, the payout ratio has seen highs of up to 96.5632% in 2004 and lows around 57.7349% in 2012. The relatively consistent payout ratio near the 65% mark indicates that Xcel Energy has been largely able to maintain its dividends within a sustainable range. However, the few years where the ratio exceeded 65% might hint towards occasional financial strains or increased dividend commitments. Nonetheless, on average, this is a fairly healthy payout ratio and suggests a balanced approach toward profit distribution and retention.

Dividends Well Covered by Earnings?

Explain the criterion for Xcel Energy (XEL) and why it is important to consider

Dividends are considered well-covered by earnings when the Earning Per Share (EPS) is significantly higher than the Dividend Per Share (DPS). This criterion ensures that the company generates enough profit to sustain its dividend payments, which is vital for long-term income investors. A coverage ratio of at least 2:1 (EPS:DPS) is typically seen as healthy.

Dividends Well Covered by Cash Flow?

Dividend coverage by cash flow is a crucial metric to understand a company's ability to sustain dividends. It is essential as it impacts investor confidence and company's financial stability.

Xcel Energy's free cash flow has been negative for most years from 2004 to 2023, except for a few years like 2003, 2006, and 2010, where the free cash flow was positive. Notably, in 2003, the coverage ratio was healthy at 0.226, and in 2010, it spiked significantly to 3.15 but has been negative or very low in other years. This trend indicates a persistent inability to cover its dividend payouts from the cash generated by operations, a concerning sign for long-term investors. The negative coverage ratios imply that Xcel Energy may be relying on debt or equity financing to meet dividend payouts, which might not be sustainable in the long run.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends, where the dividend per share didn't drop by more than 20% over the past two decades, is essential for income-seeking investors because it demonstrates the consistency and reliability of the company's earnings and financial health

Based on the data provided, the dividend per share for Xcel Energy (XEL) has shown a general upward trend over the past 20 years. However, there was a drop greater than 20%, specifically in 2013. The dividend per share dropped from $1.39 in 2012 to $1.2 in 2013. This is a decrease of approximately 13.7%, which is less than the critical threshold of 20%. This indicates a robust strategy for investor returns. Yet, such a decrease can be an important signal to investigate further the reasons behind it.

Dividends Paid for Over 25 Years?

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Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases

The data reveals that Xcel Energy (XEL) has had only one reliable stock repurchase year over the past 20 years, which was in 2017. Generally, the number of shares outstanding has increased from 418,912,000 in 2003 to 552,000,000 in 2023, reflecting a growth trend rather than reduction. This indicates that share repurchases have not been a consistent strategy for XEL. The average repurchase rate of 1.3949 is low, suggesting that stock repurchases have not played a significant role in their capital allocation strategy. For dividend-focused investors, the limited stock repurchase activity might be viewed as a negative, as it implies fewer buybacks to boost EPS and dividend growth.