Enel Distribucion Chile S.A. (SNSE:ENELDXCH) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Enel Distribucion Chile investors that purchase the stock on or after the 17th of January will not receive the dividend, which will be paid on the 21st of January.
The company's next dividend payment will be CL$0.91 per share, on the back of last year when the company paid a total of CL$18.39 to shareholders. Last year's total dividend payments show that Enel Distribucion Chile has a trailing yield of 2.1% on the current share price of CLP886.49. If you buy this business for its dividend, you should have an idea of whether Enel Distribucion Chile's dividend is reliable and sustainable. So we need to investigate whether Enel Distribucion Chile can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Enel Distribucion Chile is paying out an acceptable 64% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (86%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Enel Distribucion Chile's 25% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Enel Distribucion Chile's dividend payments per share have declined at 7.5% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Has Enel Distribucion Chile got what it takes to maintain its dividend payments? While earnings per share are shrinking, it's encouraging to see that at least Enel Distribucion Chile's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: Enel Distribucion Chile has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that in mind though, if the poor dividend characteristics of Enel Distribucion Chile don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for Enel Distribucion Chile (1 is concerning!) that you ought to be aware of before buying the shares.
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. 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.