Entergy Corporation Rewards Shareholders with 35% One-Year Total Return (NYSE:ETR)
By: Ned Piplovic,
A combination of steadily rising dividend income payouts and robust capital gains allowed the Entergy Corporation (NYSE:ETR) to distribute a significant portion of earnings to its shareholders and deliver a 35% total return on shareholders’ investments over the past 12 months.
The company has managed to avoid all dividend cuts for two decades as the last dividend reduction occurred in 1998. While failing to boost its annual dividend distribution a few times, Entergy did hike its annual dividend distribution amount in 15 of the past 20 years, or 75% of the time. Moreover, the company’s current streak of five consecutive annual dividend hikes began in 2015. The relatively steady growth of annual dividend income payouts has accompanied a moderately volatile, but consistent asset appreciation. The combined growth of income payouts and capital gains has delivered a total return on shareholders’ investment of nearly 65% over the past five years.
Entergy’s current dividend payout ratio of 70% is slightly higher than the company’s own 67% payout ratio average over the last five years. Additionally, the 70% payout ratio is substantially above the 30% to 50% payout ratio range that most investors consider sustainable. However, the 50% upper limit of that range is a general rule of thumb for overall markets and different upper limits apply for individual sectors. For instance, while Entergy’s current 70% figure is still on the high end, companies in the Utilities sector could go as high as 75%, or even 80% occasionally, and still manage to cover their dividend payouts with earnings.
Despite the recent streak of two consecutive earnings misses — including the second-quarter 2019 earnings report that was released on July 31, 2019 – Entergy’s share price has maintained a stable growth pattern over the past 12 months and technical indicators suggest that it still has room to grow. The 50-day moving average breached above the 200-day average in the second week of the trailing 12-month period and has continued to rise. As of July 31, 2019, the 50-day moving average is 10% above its 200-day counterpart. Moreover, except for three marginal dips below the 50-day average, the share price has traded above both moving averages since late January 2019.
After competing their own stock analysis, investors interested in taking advantage of double-digit annualized total return should consider taking a long position in the Energy stock before the company’s next ex-dividend date on August 7, 2019. The company will distribute the next round of dividend payouts to all shareholders of record on the September 3, 2019, pay date.
Entergy Corporation (NYSE:ETR)
Formed in 1949 as the Middle South Utilities, Inc. and currently based in New Orleans, Louisiana, the Entergy Corporation produces and distributes electricity through two business segments. The Entergy Wholesale Commodities (EWC) segment owns and operates six nuclear power plant units in the northern United States and owns all or partial interest in several non-nuclear power plants. The electricity generated by nuclear power accounts for 30% of the company’s total electric generating capacity of approximately 30,000 megawatts (MW). In addition to nuclear power, Entergy generates electricity with natural gas, oil, coal, hydro and solar power sources. The company’s Utility segment generates, transmits and distributes electric power in a four-state service territory that includes portions of Arkansas, Mississippi, Texas and Louisiana, including the city of New Orleans. This segment owns and operates approximately 22,000 MW of generating capacity and 15,500 circuit miles of interconnected high-voltage transmission lines, as well as natural gas distribution businesses in New Orleans and Baton Rouge.
Despite robust growth over the previous four years, Entergy’s share price pulled back slightly at the onset of the trailing 12-month period. However, the share price reversed direction immediately and gained 35% before reaching its 52-week high of $106.75 by mid-July 2019. After a minor pullback from the mid-July peak, the share price shrugged off the missed earnings estimates report and gained 1.7% during trading on July 31, 2019 to close at $105.62. This closing price was 31.6% higher than it was one year earlier, 33.5% above its 52-week low and 44% higher than it had been five years ago.
The current quarterly dividend amount of $0.91 is 2.2% higher than the $0.89 payout from the same period last year. This new quarterly amount corresponds to a $3.64 annualized distribution and a 4.3% yield. Despite the five consecutive annual dividend hikes, the dividend payouts grew at a slightly lower rate than the Entergy’s share price over the same period. Consequently, Entergy’s current 3.4% yield is 19% lower than the company’s own 4.3% average yield over the past five years.
However, Entergy’s current yield is nearly 75% higher than the 1.97% average yield of the entire Utilities sector. Additionally, the company’s current yield is also 57% above the 2.19% simple average yield of all the companies in the Electric Utilities industry segment. However, Entergy’s current 3.4% yield is slightly lower than the 3.77% average yield of only the dividend-paying companies in the Electric Utilities segment.
During the current streak of five consecutive annual dividend hikes, the company enhanced its total annual dividend payout 10%, which corresponds to an average growth rate of 2% per year. However, even with five missed annual hikes, Entergy managed to triple its annual dividend payout over the past two decades. This advancement is equivalent to an average annual growth rate of 5.7% per year since 1998.
Overall, Entergy’s dividend income payouts have provided nearly 10% of the company’s 35% total return over the trailing 12 months. The company also rewarded its shareholders with a 42% total return over the past three years, as well as a 64% total return over the last five-year period.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.