Should You Buy EnerSys (NYSE:ENS) For Its Upcoming Dividend In 4 Days?
EnerSys (NYSE:ENS) stock is about to trade ex-dividend in 4 days time. You can purchase shares before the 12th of September in order to receive the dividend, which the company will pay on the 27th of September.
EnerSys's next dividend payment will be US$0.17 per share. Last year, in total, the company distributed US$0.70 to shareholders. Based on the last year's worth of payments, EnerSys has a trailing yield of 1.2% on the current stock price of $58.86. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See 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. EnerSys has a low and conservative payout ratio of just 18% of its income after tax. A useful secondary check can be to evaluate whether EnerSys generated enough free cash flow to afford its dividend. Luckily it paid out just 23% of its free cash flow 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.
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. With that in mind, we're encouraged by the steady growth at EnerSys, with earnings per share up 3.9% on average over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. EnerSys has delivered 5.8% dividend growth per year on average over the past 6 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is EnerSys an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and EnerSys is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but EnerSys is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.
Ever wonder what the future holds for EnerSys? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
