Stock Analysis

Enbridge's (TSE:ENB) Shareholders Will Receive A Bigger Dividend Than Last Year

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Enbridge Inc. (TSE:ENB) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of March to CA$0.8875. This makes the dividend yield 6.6%, which is above the industry average.

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Enbridge Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share is forecast to rise by 23.2% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 113%, which is a bit high and could start applying pressure to the balance sheet.

TSX:ENB Historic Dividend February 2nd 2023

Enbridge Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was CA$1.13 in 2013, and the most recent fiscal year payment was CA$3.55. This means that it has been growing its distributions at 12% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Enbridge May Have Challenges Growing The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Enbridge has impressed us by growing EPS at 6.3% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Enbridge's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Enbridge that investors should take into consideration. Is Enbridge not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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