Should Income Investors Look At EDP - Energias do Brasil S.A. (BVMF:ENBR3) Before Its Ex-Dividend?

It looks like EDP - Energias do Brasil S.A. (BVMF:ENBR3) is about to go ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 12th of April will not receive this dividend, which will be paid on the 31st of December.

EDP - Energias do Brasil's next dividend payment will be R$0.73 per share. Last year, in total, the company distributed R$1.00 to shareholders. Last year's total dividend payments show that EDP - Energias do Brasil has a trailing yield of 5.0% on the current share price of R$19.81. If you buy this business for its dividend, you should have an idea of whether EDP - Energias do Brasil's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for EDP - Energias do Brasil

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. EDP - Energias do Brasil paid out a comfortable 40% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 65% of its free cash flow as dividends, within the usual range for most companies.

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 that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about EDP - Energias do Brasil's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, EDP - Energias do Brasil has lifted its dividend by approximately 3.1% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid EDP - Energias do Brasil? Earnings per share are down very slightly in recent times, and EDP - Energias do Brasil paid out less half its profit and more than half its cash flow as dividends, which is not the worst combination but could be better. Overall, it's hard to get excited about EDP - Energias do Brasil from a dividend perspective.

If you want to look further into EDP - Energias do Brasil, it's worth knowing the risks this business faces. To help with this, we've discovered 2 warning signs for EDP - Energias do Brasil that you should be aware of before investing in their shares.

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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