Enel Chile (SNSE:ENELCHILE) Is Due To Pay A Dividend Of CLP3.98

The board of Enel Chile S.A. (SNSE:ENELCHILE) has announced that it will pay a dividend of CLP3.98 per share on the 29th of May. However, the dividend yield of 8.0% is still a decent boost to shareholder returns.

See our latest analysis for Enel Chile

Enel Chile's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Enel Chile was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

EPS is set to fall by 13.1% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 59%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Enel Chile's Dividend Has Lacked Consistency

It's comforting to see that Enel Chile has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of CLP2.09 in 2016 to the most recent total annual payment of CLP4.58. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Enel Chile has impressed us by growing EPS at 6.5% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Enel Chile is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Enel Chile (of which 2 are concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.