Don't Buy Equitrans Midstream Corporation (NYSE:ETRN) For Its Next Dividend Without Doing These Checks
Equitrans Midstream Corporation (NYSE:ETRN) stock is about to trade ex-dividend in four days. Ex-dividend means that investors that purchase the stock on or after the 2nd of November will not receive this dividend, which will be paid on the 13th of November.
Equitrans Midstream’s next dividend payment will be US$0.15 per share. Last year, in total, the company distributed US$0.60 to shareholders. Based on the last year’s worth of payments, Equitrans Midstream stock has a trailing yield of around 7.7% on the current share price of $7.83. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it’s growing.
View our latest analysis for Equitrans Midstream
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Equitrans Midstream reported a loss last year, so it’s not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. 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. The company paid out 96% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect – but we’d generally want look more closely here.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. 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.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. 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.
Get our latest analysis on Equitrans Midstream’s balance sheet health here.
The Bottom Line
Is Equitrans Midstream an attractive dividend stock, or better left on the shelf? First, it’s not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow.” It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Equitrans Midstream. Every company has risks, and we’ve spotted 4 warning signs for Equitrans Midstream (of which 2 can’t be ignored!) you should know about.
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.
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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