Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Equitrans Midstream Corporation (NYSE:ETRN) is about to go ex-dividend in just 2 days. Investors can purchase shares before the 4th of May in order to be eligible for this dividend, which will be paid on the 14th of May.
Equitrans Midstream's next dividend payment will be US$0.15 per share. Last year, in total, the company distributed US$0.60 to shareholders. Looking at the last 12 months of distributions, Equitrans Midstream has a trailing yield of approximately 7.4% on its current stock price of $8.16. If you buy this business for its dividend, you should have an idea of whether Equitrans Midstream's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Equitrans Midstream
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Equitrans Midstream paid out more than half (57%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 43% of its free cash flow in the past year.
It's positive to see that Equitrans Midstream's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Equitrans Midstream's earnings per share have fallen at approximately 28% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Equitrans Midstream's dividend payments per share have declined at 40% per year on average over the past two years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.