Enbridge Inc. (TSE:ENB) will increase its dividend from last year’s comparable payment on the 1st of June to CA$0.8875. This takes the dividend yield to 6.6%, which shareholders will be pleased with.
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company’s dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn’t be confident about this continuing.
The next 12 months is set to see EPS grow by 181.0%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 114%, which probably can’t continue without putting some pressure on the balance sheet.
The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the annual payment back then was CA$1.13, compared to the most recent full-year payment of CA$3.55. This means that it has been growing its distributions at 12% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
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