Dividend Investors: Don't Be Too Quick To Buy Equitrans Midstream Corporation (NYSE:ETRN) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Equitrans Midstream Corporation (NYSE:ETRN) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 2nd of February will not receive the dividend, which will be paid on the 12th of February.

Equitrans Midstream's next dividend payment will be US$0.15 per share, on the back of last year when the company paid a total of US$0.60 to shareholders. Last year's total dividend payments show that Equitrans Midstream has a trailing yield of 9.3% on the current share price of $6.48. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Equitrans Midstream has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Equitrans Midstream

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. Equitrans Midstream's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Equitrans Midstream didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year it paid out 62% of its free cash flow as dividends, within the usual range for most companies.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Equitrans Midstream reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Equitrans Midstream has seen its dividend decline 40% per annum on average over the past two years, which is not great to see. 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.

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

To Sum It Up

Should investors buy Equitrans Midstream for the upcoming dividend? It's hard to get used to Equitrans Midstream paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Equitrans Midstream as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 4 warning signs for Equitrans Midstream (2 don't sit too well with us!) that deserve your attention before investing in 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. 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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