How Did NRG Energy’s Dividend Cut Affect Its Dividend Yield?
Why did NRG’s revenues and EPS fall in 9M17?
NRG Energy’s (NRG) operating revenues fell 2.0% in 9M17. Every segment of the company drove this decline. Its operating costs and expenses remained flat. As a result, the company’s operating income fell 18.0%.
NRG’s other expenses decreased 33.0% during the period due to the absence of impairment, an insignificant debt extinguishment charge, and lower interest expenses. These factors translated into negative EPS (earnings per share) after falling 314.0%.
NRG Energy has generated a positive free cash flow balance since 2014. However, it was unable to generate enough free cash flow to pay off its dividends for 2015.
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How has NRG’s dividend yield evolved over the years?
NRG Energy’s (NRG) 59.0% cut in its dividend per share in 2016 was followed by a 50.0% cut in 2017. Its stock price rose 127.0% on a year-to-date (or YTD) basis after a 4.0% gain in 2016. This trend explains the company’s downward sloping dividend yield curve.
NRG Energy has a dividend yield of 0.4% and a YTD return of 127.0%, compared to a sector average dividend yield of 3.4% and a PE ratio of 62.6x.
Comparison with broad indexes
The S&P 500 (SPX-INDEX) (SPY) offers a dividend yield of 2.3%, a PE ratio of 22.7x, and a YTD return of 15.5%. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) has a dividend yield of 2.3%, a PE ratio of 21.2x, and a YTD return of 18.7%. The NASDAQ Composite (COMP-INDEX) (ONEQ) has a PE ratio of 25.4x and a YTD return of 25.4%.
The WisdomTree DEFA ETF (DWM) is a dividend ETF with 6.0% exposure to utilities. It has a PE ratio of 17.5x and a dividend yield of 3.1%. The ProShares Russell 2000 Dividend Growers ETF (SMDV) is a dividend ETF with 26.0% exposure to utilities. It has a PE ratio of 23.5x and a dividend yield of 1.6%.