Enbridge Inc. (TSE: ENB) is gearing up to trade ex-dividend in two days, a critical event for investors eyeing dividend income. Understanding the dynamics of dividend payments, earnings growth, and sustainability is crucial for making informed investment decisions. Let’s delve into Enbridge’s dividend performance, earnings growth, and the implications for investors.
Analyzing the Ex-Dividend Date and Dividend Yield
Investors should note that the ex-dividend date for Enbridge is typically one business day before the record date. Purchasing the stock on or after February 14th will render investors ineligible for the upcoming dividend payout on March 1st. Enbridge’s upcoming dividend yield stands at CA$0.915 per share, resulting in a trailing yield of 8.0% based on the current share price of CA$46.03. While high dividend yields can be attractive, investors must assess the sustainability of dividend payments.
Examining Dividend Coverage and Cash Flow
A crucial factor in evaluating dividend sustainability is the company’s ability to cover dividend payments with its earnings. Enbridge distributed 125% of its profit as dividends last year, raising concerns about the sustainability of such high payout ratios. Additionally, paying out 82% of free cash flow as dividends could limit the company’s flexibility for future dividend increases if there’s no corresponding growth. While Enbridge’s dividends appear affordable from a cash perspective, consistently paying dividends larger than reported earnings could pose long-term risks.
Assessing Earnings and Dividend Growth
Consistent growth in earnings per share is a positive indicator for dividend sustainability. Enbridge has demonstrated impressive EPS growth, averaging 13% annually over the past five years. Moreover, the company has consistently increased its dividend by approximately 11% per year over the last decade, aligning with its earnings growth trajectory. This trend bodes well for dividend investors, as companies with growing EPS typically can sustain and increase dividend payments over time.
Enbridge’s Dividend Sustainability
While Enbridge exhibits strong earnings and dividend growth, the company’s high payout ratios raise concerns about the sustainability of its dividend payments. Investors should carefully monitor Enbridge’s ability to generate sufficient earnings and free cash flow to cover dividend obligations. Although the company has reported robust EPS growth and a consistent track record of dividend increases, prudent risk management is essential when evaluating dividend stocks. Overall, while Enbridge shows promise, investors should conduct thorough due diligence before making investment decisions.
