Yahoo Finance Dividend Investors: Don't Be Too Quick To Buy Equitrans Midstream Corporation (NYSE:ETRN) For Its Upcoming Dividend
Equitrans Midstream Corporation (NYSE:ETRN) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Equitrans Midstream's shares on or after the 3rd of August will not receive the dividend, which will be paid on the 14th of August.
The company's next dividend payment will be US$0.15 per share, on the back of last year when the company paid a total of US$0.60 to shareholders. Calculating the last year's worth of payments shows that Equitrans Midstream has a trailing yield of 5.8% on the current share price of $10.33. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Equitrans Midstream has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Equitrans Midstream
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Equitrans Midstream lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. 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. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Equitrans Midstream's dividend payments per share have declined at 22% per year on average over the past four years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
We update our analysis on Equitrans Midstream every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Has Equitrans Midstream got what it takes to maintain its dividend payments? It's hard to get used to Equitrans Midstream paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Equitrans Midstream is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that in mind though, if the poor dividend characteristics of Equitrans Midstream don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 2 warning signs for Equitrans Midstream you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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