CenterPoint Energy (NYSE:CNP) Has Announced That It Will Be Increasing Its Dividend To US$0.17

CenterPoint Energy, Inc. (NYSE:CNP) will increase its dividend on the 10th of March to US$0.17. Although the dividend is now higher, the yield is only 2.4%, which is below the industry average.

CenterPoint Energy Might Find It Hard To Continue The Dividend

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Even in the absence of profits, CenterPoint Energy is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Recent, EPS has fallen by 27.7%, so this could continue over the next year. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was US$0.79, compared to the most recent full-year payment of US$0.68. The dividend has shrunk at around 1.5% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. CenterPoint Energy's earnings per share has shrunk at 28% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The company has also been raising capital by issuing stock equal to 15% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

We're Not Big Fans Of CenterPoint Energy's Dividend

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. The dividend doesn't inspire confidence that it will provide solid income in the future.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, CenterPoint Energy has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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