Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Enero Group Limited (ASX:EGG) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 27th of February to receive the dividend, which will be paid on the 19th of March.
Enero Group’s next dividend payment will be AU$0.025 per share, and in the last 12 months, the company paid a total of AU$0.06 per share. Looking at the last 12 months of distributions, Enero Group has a trailing yield of approximately 3.4% on its current stock price of A$1.79. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! As a result, readers should always check whether Enero Group has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Enero Group
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Enero Group distributed an unsustainably high 131% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Enero Group generated enough free cash flow to afford its dividend. The good news is it paid out just 22% of its free cash flow in the last year.
It’s disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Enero Group fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we’d view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
ASX:EGG Historical Dividend Yield, February 22nd 2020
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That’s why it’s comforting to see Enero Group’s earnings have been skyrocketing, up 39% per annum for the past five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Enero Group’s dividend payments per share have declined at 35% per year on average over the past ten years, which is uninspiring. It’s unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We’d hope it’s because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
The Bottom Line
Is Enero Group worth buying for its dividend? It’s good to see earnings per share growing and low cashflow payout ratio, although we’re uncomfortable with Enero Group’s paying out such a high percentage of its profit. To summarise, Enero Group looks okay on this analysis, although it doesn’t appear a stand-out opportunity.
Ever wonder what the future holds for Enero Group? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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