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Dividend lift fails to lift FGEN from oversold territory

FGEN raised its dividend to 0.35 a share from 0.3 a year earlier. But the move failed to raise FGEN out of the oversold territory.

The reason for worry

FGEN’s profit margin dropped to 31% in Q1 2022 from 42% in Q1 2021. Revenue rose for the period as compared to last year because the selling price rose due to the increase in costs. But FGEN was unable to pass on all the increase in the costs of sales to consumers. FGEN was forced to absorb some of the increased costs. The absorb costs eats on its profit margin.

FGEN’s fuel costs rose 80.6% from $132 million in Q1 2021 to $239 million in Q1 2022. The increase in fuel costs translated to a 41% increase in the costs of sale of electricity.

The margin compression affects the cash flows from operation. FGEN’s cash flows from operations in Q1 2021 was $370 million. It dropped 71% to just $107 million in Q1 2022. The significant drop was primarily due to an increase in inventories because of higher liquid fuel inventories.

It looks like FGEN’s dividend raise might not be sustainable after all. Especially if FGEN’s operating cash flow continues to weaken.

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