Shares of Enbridge Inc (TSX:ENB)(NYSE:ENB) are down 20% in 2020 and a struggling and volatile oil and gas industry could make this a risky stock to own. The big question dividend investors are likely wondering is if the stock’s dividend payments are safe.
Enbridge recently increased its dividend payments from $0.738 to $0.81, a hike of 9.8%. Investors are currently earning a mammoth 7.9% based on today’s price of $41 per share.
It’s an attractive yield but generally the higher that dividend yields rise over 5%, the riskier they start to be. Many oil and gas stocks have already either cut or suspended their dividend payments in light of weak oil prices and the coronavirus pandemic.
As the industry continues to struggle, it may be only a matter of time before Enbridge adjusts its payouts. In each of the past four quarters, Enbridge has paid out more in dividends than the free cash flow it has generated.
That’s not a good sign, especially as free cash may start to decline even further during more of a downturn in the industry and amid less demand for oil.
If you’re interested in buying Enbridge for its dividend, you may want to consider waiting until the company releases its earnings early next month.
At that point, investors will have a better idea of how the company is doing during these challenging economic conditions and that may also be when Enbridge announces if it’s cutting or suspending its dividend.
But even if the company doesn’t make a change to its dividend, it’s a stock that investors will want to keep a close eye on as there’s still a lot of risk in the industry.
