The board of Enbridge Inc. (TSE:ENB) has announced that it will be paying its dividend of CA$0.8875 on the 1st of March, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 6.5%, providing a nice boost to shareholder returns.
Enbridge Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
Earnings per share is forecast to rise by 24.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 112%, which probably can't continue without putting some pressure on the balance sheet.
Enbridge Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the annual payment back then was CA$1.13, compared to the most recent full-year payment of CA$3.55. This means that it has been growing its distributions at 12% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Enbridge May Have Challenges Growing The Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Enbridge has seen EPS rising for the last five years, at 6.3% per annum. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.
Enbridge's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think Enbridge's payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Enbridge that investors need to be conscious of moving forward. Is Enbridge not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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