The board of Avangrid, Inc. (NYSE:AGR) has announced that it will pay a dividend on the 1st of July, with investors receiving US$0.44 per share. This means the annual payment is 3.7% of the current stock price, which is above the average for the industry.
See our latest analysis for Avangrid
Avangrid Is Paying Out More Than It Is Earning
A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. This is a pretty unsustainable practice, and could be risky if continued for the long term.
Over the next year, EPS is forecast to expand by 6.0%. If the dividend continues on its recent course, the payout ratio in 12 months could be 97%, which is a bit high and could start applying pressure to the balance sheet.
Avangrid Is Still Building Its Track Record
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2016, the dividend has gone from US$1.73 to US$1.76. Dividend payments have grown at less than 1% a year over this period. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.
The Dividend's Growth Prospects Are Limited
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. It's not great to see that Avangrid's earnings per share has fallen at approximately 2.2% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
We'd also point out that Avangrid has issued stock equal to 25% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Avangrid's Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Avangrid's payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.