Endesa (BME:ELE) Is Increasing Its Dividend To €0.6623

Endesa, S.A. (BME:ELE) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of July to €0.6623. This takes the dividend yield to 5.4%, which shareholders will be pleased with.

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Endesa's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Endesa's was paying out quite a large proportion of earnings and 81% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

The next year is set to see EPS grow by 8.3%. If the dividend continues on this path, the payout ratio could be 58% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Endesa

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was €0.76, compared to the most recent full-year payment of €1.32. This works out to be a compound annual growth rate (CAGR) of approximately 5.6% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Endesa has grown earnings per share at 62% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Endesa hasn't been doing.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Endesa's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Endesa is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Endesa that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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