Enagás (BME:ENG) Has Announced That It Will Be Increasing Its Dividend To €0.5573

Enagás, S.A. (BME:ENG) will increase its dividend from last year's comparable payment on the 21st of December to €0.5573. This makes the dividend yield 10.0%, which is above the industry average.

View our latest analysis for Enagás

Enagás Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Enagás' dividend was only 59% of earnings, however it was paying out 105% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to fall by 45.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 151%, which could put the dividend under pressure if earnings don't start to improve.

Enagás Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the annual payment back then was €0.993, compared to the most recent full-year payment of €1.72. This means that it has been growing its distributions at 5.6% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Enagás May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Growth of per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Enagás' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Enagás (2 are a bit concerning!) 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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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.