EDP - Energias do Brasil S.A. (BVMF:ENBR3) Pays A R$0.27 Dividend In Just Three Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see EDP - Energias do Brasil S.A. (BVMF:ENBR3) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 5th of January in order to receive the dividend, which the company will pay on the 30th of June.

EDP - Energias do Brasil's next dividend payment will be R$0.27 per share, and in the last 12 months, the company paid a total of R$0.58 per share. Based on the last year's worth of payments, EDP - Energias do Brasil stock has a trailing yield of around 3.0% on the current share price of R$19.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for EDP - Energias do Brasil

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. EDP - Energias do Brasil paid out a comfortable 27% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 53% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that EDP - Energias do Brasil'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at EDP - Energias do Brasil, with earnings per share up 6.7% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. EDP - Energias do Brasil's dividend payments per share have declined at 0.6% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Should investors buy EDP - Energias do Brasil for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that EDP - Energias do Brasil is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of EDP - Energias do Brasil's dividend merits.

On that note, you'll want to research what risks EDP - Energias do Brasil is facing. For example - EDP - Energias do Brasil has 2 warning signs we think you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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