E.ON (E.ON AG) is one of the world’s largest investor-owned power and gas companies. Being a global player providing an essential product – heat and power – while offering a substantial dividend, this is an interesting company for dividend investors.
E.ON Business Summary
In 2009 E.ON had more than 88,000 employees and 30 million customers in more than 30 countries. Europe is the main region for E.ON, with geographical market units in Russia, Nordic, U.K., Central Europe, Spain, Italy and U.S. Midwest (to be sold).
E.ON operates along the entire value chain in power and gas; generation (58 % of earnings), trading & transmission (23 % of earnings), distribution, retail and sales (19% of earnings). In the last years the company has grown thanks to its operations in Russia, Italy, Spain and France, the creation of a top energy trading company and an expanded gas production. Renewables are pointed out as E.ON’s top growth engine, representing about 25% of the growth in 2007-2011. In 2009 E.ON sales were €82 billion, resulting in an adjusted EBIT of €9,6 billion.
The E.ON AG Share
The E.ON share is traded on the Xetra Stock Exchange (EONGn.DE), the Frankfurt Stock Exchange (EONGn.DE or EOAN GY) and as an ADR (American Depositary Receipt) on the NASDAQ OTC Foreign (EONGY US). The E.ON share is part of the most important indices, including the DAX, Dow Jones (DJ) Stoxx 50, DJ Euro Stoxx 50, DJ Stoxx Utilities Index and the German dividend index (DivDAX) as well as the DJ Sustainability Index.
E.ON currently trades at the 2005 levels, having fallen substantially since the start of the financial crisis in 2008.
View the full EONGY chart at Wikinvest
E.ON’s earnings from adjusted net income has increased since 2005 until 2008, since it declined somewhat in 2009 following more challening market conditions after the financial crisis had hit. The last five years the average annual earnings increase is 11,6 %, which I consider a considerable growth for such a global and mature company. E.ON forecasts 2010 earnings to be in line with those of 2009.
E.ON Earnings From Adjusted Net IncomeThe return on capital employed has remained between 12 and 14 percent since 2004. The effect of the financial crisis can be seen also in this aspect. However, compared with the stock price, both earnings and the return on capital have only taken a mild hit.
E.ON Return On Capital EmployedThe dividend has increased by an average of 19,8 % since 2004, despite the fact that the dividend wasn’t raised in 2009 due to the financial crisis. That is an impressive dividend growth and the maintained dividend shows promising strength and commitment to shareholder value even when times are rough. Should this dividend growth continue, the dividend will double every three to four years.
Since the stock price has fallen to €21,60 while dividends have been maintained at €1,50, the E.ON share currently yields 6,9 %. That is well above my minimum requirement of 3 %.
E.ON Dividend Per ShareIt is important not to forget to look at the dividend payout ratio. If the dividend is increased at the expense of an increasingly higher dividend payout ratio, the dividend will be more and more difficult for the company to sustain as it consumes an ever larger chunk of its earnings. In the case of E.ON, the dividend policy states that between 50 and 60 % of earnings should be paid out as dividends. As we can see in the chart below, this has also been the case since 2005. This underlines the strength proven above and is an indication of a robust dividend stock.
E.ON Dividend Payout RatioConclusion
E.ON is a growing global player providing millions of customers with essential heat and power. It enjoys a considerable moat to current and future competitors due to the vast infrastructure needed to compete with E.ON. It has increased or maintained its dividend consistently with an intact payout ratio and now yields 6,9 % due to renewed stock market turmoil.
As a dividend investor, I don’t worry about the stock market fluctuations more than that I take advantage of the times when it offers me dividend bargains. A 6,9 % yield from such a robust company is very tempting to me and I am considering adding E.ON to my dividend portfolio in the near future. Learn more about E.ON through their investor presentation. What is your take on E.ON?
Full disclosure: No position in E.ON, but considering to buy. Make sure to read the disclaimer.