It’s not often that I come across a business that has raised its dividend for 21 consecutive years.

But Enbridge Inc. (NYSE: ENB) is one such company. The Canadian pipeline operator has paid an annual dividend for 63 years, and it has meaningfully boosted its dividend every year since 1995.

[ad#Google Adsense 336×280-IA]However, I’m not sure how much longer it will be able to continue doing that.

Over the last 11 years, its dividend has grown at a compound annual rate of 14%. This is equal to the year-over-year dividend raise the company announced for 2016.

So what’s the problem?

Enbridge just doesn’t generate enough cash flow to pay the dividend. In fact, it doesn’t generate any cash at all.

Last year, cash flow from operations was CA$4.6 billion, but capital expenditures totaled CA$7.2 billion, creating negative cash flow.

In other words, after operating its business and paying to maintain and expand its facilities, Enbridge did not bring any money in the door.

And it hasn’t in years.

It doesn’t make sense to even discuss the payout ratio as we know it’s a negative number, given the negative free cash flow.

The Lesser of Two Evils

To make matters worse, Enbridge’s lack of cash is accompanied by a considerable amount of debt.

At the end of the first quarter, Enbridge had CA$1.8 billion in cash. And this year’s dividend payment is estimated to be CA$1.4 billion. But it also has CA$36.5 billion in long-term debt and its interest expense for the year should exceed CA$1.6 billion.

So the company has two ways to pay the dividend. It can pay shareholders out of cash on hand or it can raise more debt, which is a scary proposition.

Enbridge has done a sensational job of raising the dividend every year for more than two decades, and it has promised to do so again this year. But the music should stop at some point, and you don’t want to be the one without a chair.

Dividend Safety Rating: D

Good investing,



Source: Wealthy Retirement