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Enbridge Inc. (TSE:ENB) will increase its dividend from last year's comparable payment on the 1st of March to CA$0.9425. This takes the annual payment to 6.0% of the current stock price, which is about average for the industry.
Check out our latest analysis for Enbridge
Enbridge's Projections Indicate Future Payments May Be Unsustainable
We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
Over the next year, EPS is forecast to expand by 3.9%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 134%, which probably can't continue without putting some pressure on the balance sheet.
Enbridge Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was CA$1.40, compared to the most recent full-year payment of CA$3.77. This means that it has been growing its distributions at 10% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend's Growth Prospects Are Limited
The company's investors will be pleased to have been receiving dividend income for some time. However, Enbridge's EPS was effectively flat over the past five years, which could stop the company from paying more every year. The earnings growth is anaemic, and the company is paying out 123% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.
Enbridge's Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think Enbridge will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Enbridge you should be aware of, and 2 of them are significant. 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.