Read This Before Buying Encana Corporation (TSE:ECA) For Its Dividend
A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Encana Corporation (TSE:ECA) has been paying a dividend to shareholders. Today it yields 1.0%. Should it have a place in your portfolio? Let’s take a look at Encana in more detail.
See our latest analysis for Encana
Here’s how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is its annual yield among the top 25% of dividend-paying companies?
Has it paid dividend every year without dramatically reducing payout in the past?
Has the amount of dividend per share grown over the past?
Does earnings amply cover its dividend payments?
Will it have the ability to keep paying its dividends going forward?
Does Encana pass our checks?
The current payout ratio for ECA is negative, which is not great.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Dividend payments from Encana have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Relative to peers, Encana has a yield of 1.0%, which is on the low-side for Oil and Gas stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Encana for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three key factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for ECA’s future growth? Take a look at our free research report of analyst consensus for ECA’s outlook.
Valuation: What is ECA worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ECA is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
