Stock Analysis

Just Three Days Till EnerSys (NYSE:ENS) Will Be Trading Ex-Dividend

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NYSE:ENS
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It looks like EnerSys (NYSE:ENS) is about to go ex-dividend in the next three days. This means that investors who purchase shares on or after the 17th of December will not receive the dividend, which will be paid on the 31st of December.

EnerSys's next dividend payment will be US$0.17 per share, on the back of last year when the company paid a total of US$0.70 to shareholders. Last year's total dividend payments show that EnerSys has a trailing yield of 0.8% on the current share price of $85.13. If you buy this business for its dividend, you should have an idea of whether EnerSys'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.

View our latest analysis for EnerSys

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately EnerSys's payout ratio is modest, at just 31% of profit. 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. The good news is it paid out just 11% of its free cash flow in the last year.

It's positive to see that EnerSys'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 the company's payout ratio, plus analyst estimates of its future dividends.

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NYSE:ENS Historic Dividend December 13th 2020

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by EnerSys's 10% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last eight years, EnerSys has lifted its dividend by approximately 4.3% a year on average.

The Bottom Line

Has EnerSys got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of EnerSys's dividend merits.

While it's tempting to invest in EnerSys for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 4 warning signs for EnerSys that you should be aware of before investing in their shares.

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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