Enerflex (TSE:EFX) Will Pay A Dividend Of CA$0.025

Enerflex Ltd. (TSE:EFX) has announced that it will pay a dividend of CA$0.025 per share on the 7th of July. The dividend yield is 1.3% based on this payment, which is a little bit low compared to the other companies in the industry.

See our latest analysis for Enerflex

Enerflex's Distributions May Be Difficult To Sustain

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Enerflex is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Over the next year, EPS might fall by 4.9% based on recent performance. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from CA$0.24 to CA$0.10. The dividend has shrunk at around 8.4% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Enerflex May Find It Hard To Grow The Dividend

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. In the last five years, Enerflex's earnings per share has shrunk at approximately 4.9% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Enerflex's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

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. For instance, we've picked out 1 warning sign for Enerflex that investors should take into consideration. Is Enerflex not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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