Read This Before Considering Enerplus Corporation (TSE:ERF) For Its Upcoming CA$0.01 Dividend

By
Simply Wall St
Published
March 25, 2021
TSX:ERF

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Enerplus Corporation (TSE:ERF) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 30th of March will not receive the dividend, which will be paid on the 15th of April.

Enerplus's next dividend payment will be CA$0.01 per share. Last year, in total, the company distributed CA$0.12 to shareholders. Last year's total dividend payments show that Enerplus has a trailing yield of 1.8% on the current share price of CA$6.52. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Enerplus

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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Enerplus didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 26% of its free cash flow in the past year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
TSX:ERF Historic Dividend March 25th 2021

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Enerplus was unprofitable last year, but at least the general trend suggests its earnings have 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.

The main way most investors will assess a company's dividend prospects is by checking the 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.

Final Takeaway

Is Enerplus worth buying for its 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. Overall, it's hard to get excited about Enerplus from a dividend perspective.

If you're not too concerned about Enerplus's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we've spotted 3 warning signs for Enerplus you should know about.

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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