We Wouldn’t Be Too Quick To Buy Enbridge Inc. (TSE:ENB) Before It Goes Ex-Dividend

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We Wouldn’t Be Too Quick To Buy Enbridge Inc. (TSE:ENB) Before It Goes Ex-Dividend

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 Enbridge Inc. (TSE:ENB) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn’t show on the record date. This means that investors who purchase Enbridge’s shares on or after the 14th of February will not receive the dividend, which will be paid on the 1st of March.

The company’s next dividend payment will be CA$0.9425 per share, and in the last 12 months, the company paid a total of CA$3.66 per share. Based on the last year’s worth of payments, Enbridge stock has a trailing yield of around 5.9% on the current share price of CA$63.51. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it’s growing.

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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. Enbridge distributed an unsustainably high 123% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. Enbridge paid out more free cash flow than it generated – 116%, to be precise – last year, which we think is concerningly high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.

Cash is slightly more important than profit from a dividend perspective, but given Enbridge’s payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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TSX:ENB Historic Dividend February 9th 2025

Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Enbridge’s earnings per share have been growing at 15% a year for the past five years. Earnings are growing pretty quickly, which is great, but it’s uncomfortably to see the company paying out 123% of earnings. Unless there are extenuating circumstances, we feel this is a clear concern around the sustainability of the dividend.

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Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Enbridge has increased its dividend at approximately 10% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

From a dividend perspective, should investors buy or avoid Enbridge? While it’s nice to see earnings per share growing, we’re curious about how Enbridge intends to continue growing, or maintain the dividend in a downturn given that it’s paying out such a high percentage of its earnings and cashflow. It’s not an attractive combination from a dividend perspective, and we’re inclined to pass on this one for the time being.

Although, if you’re still interested in Enbridge and want to know more, you’ll find it very useful to know what risks this stock faces. For example – Enbridge has

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we think you should be aware of.

If you’re in the market for strong dividend payers, we recommend

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with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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#Wouldnt #Quick #Buy #Enbridge #TSEENB #ExDividend

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