Q: I notice that both ENB and EMA have high payout ratios. ENB seems to be about 138% on Dividendhistory.org and EMA around 98%.
Is this possible? What does it say about the safety of the dividend or do utilities use a different calculation when it comes to Dividend payouts?
Thank you
Frank
Is this possible? What does it say about the safety of the dividend or do utilities use a different calculation when it comes to Dividend payouts?
Thank you
Frank
5i Research Answer:
In the sector, there are high depreciation charges and other charges, that impact earnings but not cash flow. Thus, we prefer to look at cash flow when assessing payout ratios. If we look at operating cash flow, ENB's 12-month payout is 59% and EMA's is 23%. Yes, there is some required maintenace spending for each company that comes after operating cash flow, but other spending (acquisitions, buybacks etc) is more discretionary. Based on cash flow, we would have little concerns on the dividends from either company.