Enerplus Corporation (TSE:ERF) is about to trade ex-dividend in the next four days. If you purchase the stock on or after the 28th of January, you won't be eligible to receive this dividend, when it is paid on the 16th of February.
Enerplus's next dividend payment will be CA$0.01 per share, and in the last 12 months, the company paid a total of CA$0.12 per share. Based on the last year's worth of payments, Enerplus has a trailing yield of 2.8% on the current stock price of CA$4.26. If you buy this business for its dividend, you should have an idea of whether Enerplus's dividend is reliable and sustainable. As a result, readers should always check whether Enerplus has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Enerplus reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. What's good is that dividends were well covered by free cash flow, with the company paying out 18% of its cash flow last year.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Enerplus reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Enerplus has seen its dividend decline 25% per annum on average over the past 10 years, which is not great to see.
Remember, you can always get a snapshot of Enerplus's financial health, by checking our visualisation of its financial health, here.
Should investors buy Enerplus for the upcoming dividend? It's hard to get used to Enerplus paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. In summary, it's hard to get excited about Enerplus from a dividend perspective.
On that note, you'll want to research what risks Enerplus is facing. Case in point: We've spotted 2 warning signs for Enerplus you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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