We Wouldn't Be Too Quick To Buy Naturgy Energy Group, S.A. (BME:NTGY) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Naturgy Energy Group, S.A. (BME:NTGY) is about to go ex-dividend in just day or so. You can purchase shares before the 27th of July in order to receive the dividend, which the company will pay on the 29th of July.

Naturgy Energy Group's next dividend payment will be €0.25 per share, and in the last 12 months, the company paid a total of €1.37 per share. Based on the last year's worth of payments, Naturgy Energy Group has a trailing yield of 8.2% on the current stock price of €16.655. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Naturgy Energy Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Naturgy Energy Group paid out 96% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while Naturgy Energy Group's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Naturgy Energy Group's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Naturgy Energy Group has lifted its dividend by approximately 9.1% a year on average.

Final Takeaway

Is Naturgy Energy Group an attractive dividend stock, or better left on the shelf? Earnings per share have been flat in recent times, which is, we suppose, better than seeing them shrink. Plus, Naturgy Energy Group's paying out a high percentage of its earnings and more than half its cash flow. Bottom line: Naturgy Energy Group has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Naturgy Energy Group as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 2 warning signs for Naturgy Energy Group (of which 1 is potentially serious!) you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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