If you have been researching CenterPoint Energy, you may have some questions about this stock. Dividends have been seeing major changes in the last year, and this stock is no different. Will this stock by a great dividend buy or will it be a bust? Ilan Moscovitz explains some details to help you decide.
First and foremost, dividend investors like a large forward yield. But if a yield gets too high, it may reflect investors’ doubts about the payout’s sustainability. If investors had confidence in the stock, they’d be buying it, driving up the share price and shrinking the yield.
CenterPoint Energy yields 3.9%, considerably higher than the S&P’s 2%.
2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company paid out in dividends last year to the earnings it generated. A ratio that’s too high – say, greater than 80% of earnings — indicates that the company may be stretching to make payouts it can’t afford, even when its dividend yield doesn’t seem particularly high.
CenterPoint Energy’s payout ratio is a modest 25%.
3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments – a ratio less than 5 can be a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company’s total debt burden.
Now its time to draw your conclusions from the information. Its all a matter of opinion, and whether or not it will fit well into your portfolio.
Quotes taken from report by Ilan Moscovitz , Read the entire article here.
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