Analyzing FirstEnergy’s Dividend Profile

Many utility stocks are trading at a yield above peers’ average. FirstEnergy (FE) is one of them. FirstEnergy offers a yield of 3.7%, which is higher than utilities’ average yield of 3.2%. FirstEnergy’s five-year average yield is ~4.3%.

Xcel Energy (XEL) is trading at a dividend yield of 2.9%, while PPL (PPL) is trading at a yield of 5.1%.

FirstEnergy’s dividend growth has been discouraging due to its relatively less stable earnings. In the last five years, FirstEnergy’s dividend per share has fallen ~8%, while broader utilities (XLU) increased their dividends ~4% compounded annually during the same period.

In the first quarter of 2014, FirstEnergy trimmed its dividend from $0.55 to $0.36 when cash retention became crucial. After several years of flat dividends, FirstEnergy increased its dividend 5.5%. The dividend will be paid in the first quarter.

FirstEnergy’s payout ratio was 56% in 2018, which was much lower than broader utilities’ average payout ratio of ~75%. The payout ratio is the portion of the company’s profits shared with shareholders in the form of dividends. Xcel Energy’s payout ratio was 86%, while PPL’s payout ratio was 63% in 2018.

Xcel Energy raised its dividend ~6% compounded annually, while PPL increased its dividend ~2% in the last five years.