EnLink Midstream, LLC (NYSE:ENLC) will pay a dividend of $0.1325 on the 14th of November. This means that the annual payment will be 3.6% of the current stock price, which is in line with the average for the industry.

See our latest analysis for EnLink Midstream

EnLink Midstream's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, the company was paying out 162% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 38%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share is forecast to rise by 148.2% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 62% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $0.72 in 2014, and the most recent fiscal year payment was $0.53. Doing the maths, this is a decline of about 3.0% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

EnLink Midstream Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that EnLink Midstream has been growing its earnings per share at 66% a year over the past five years. Although earnings per share is up nicely EnLink Midstream is paying out 162% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Our Thoughts On EnLink Midstream's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about EnLink Midstream's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for EnLink Midstream (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is EnLink Midstream not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.