Read This Before Considering Enaex S.A. (SNSE:ENAEX) For Its Upcoming US$0.11 Dividend

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 Enaex S.A. (SNSE:ENAEX) is about to go ex-dividend in just three days. Ex-dividend means that investors that purchase the stock on or after the 23rd of November will not receive this dividend, which will be paid on the 26th of November.

Enaex's next dividend payment will be US$0.11 per share, and in the last 12 months, the company paid a total of US$0.40 per share. Based on the last year's worth of payments, Enaex stock has a trailing yield of around 4.3% on the current share price of CLP7050. If you buy this business for its dividend, you should have an idea of whether Enaex's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Enaex

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Enaex is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 45% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Enaex'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 how much of its profit Enaex paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see Enaex's earnings per share have been shrinking at 4.1% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Enaex has lifted its dividend by approximately 2.0% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid Enaex? Enaex has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

While it's tempting to invest in Enaex for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 3 warning signs for Enaex that we strongly recommend you have a look at before investing in the company.

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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