It Might Not Be A Great Idea To Buy EnPro Industries, Inc. (NYSE:NPO) For Its Next Dividend

By
Simply Wall St
Published
February 25, 2021
NYSE:NPO

Readers hoping to buy EnPro Industries, Inc. (NYSE:NPO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 2nd of March to receive the dividend, which will be paid on the 17th of March.

EnPro Industries's next dividend payment will be US$0.27 per share, and in the last 12 months, the company paid a total of US$1.08 per share. Calculating the last year's worth of payments shows that EnPro Industries has a trailing yield of 1.3% on the current share price of $80.58. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for EnPro Industries

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. EnPro Industries lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out more than half (66%) of its free cash flow in the past year, which is within an average range for most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:NPO Historic Dividend February 25th 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. EnPro Industries was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, six years ago, EnPro Industries has lifted its dividend by approximately 5.1% a year on average.

Remember, you can always get a snapshot of EnPro Industries's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Should investors buy EnPro Industries for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of EnPro Industries don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 2 warning signs with EnPro Industries and understanding them should be part of your investment process.

If you're in the market for dividend stocks, we recommend checking our list of top 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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