Stock Analysis

EnerSys (NYSE:ENS) Has Affirmed Its Dividend Of $0.175

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NYSE:ENS
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EnerSys (NYSE:ENS) will pay a dividend of $0.175 on the 30th of December. This payment means the dividend yield will be 0.9%, which is below the average for the industry.

Our analysis indicates that ENS is potentially undervalued!

EnerSys' Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. EnerSys is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 36.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 16%, which is in the range that makes us comfortable with the sustainability of the dividend.

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NYSE:ENS Historic Dividend November 13th 2022

EnerSys Doesn't Have A Long Payment History

EnerSys' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 9 years was $0.50 in 2013, and the most recent fiscal year payment was $0.70. This means that it has been growing its distributions at 3.8% per annum over that time. EnerSys hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Over the past five years, it looks as though EnerSys' EPS has declined at around 3.1% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While EnerSys is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for EnerSys that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

What are the risks and opportunities for EnerSys?

EnerSys provides various stored energy solutions for industrial applications worldwide.

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Rewards

  • Trading at 62.2% below our estimate of its fair value

  • Earnings are forecast to grow 37.67% per year

Risks

  • Debt is not well covered by operating cash flow

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