Q: Please explain the economics / accounting of how a utility co like Enbridge can have a payout ratio above 100% for years and still raise its dividend each year without stock price crashing
5i Research Answer:
Some companies have a lot of depreciation charges and other NON-CASH expenses, which impact reported earnings per share but in no way impact actual cash flow. Since dividends are paid with cash, we look at cash flow rather than earnings to determine dividend safety. ENB is in much better shape on its cash flow metrics.