Enagás (BME:ENG) Is Increasing Its Dividend To €0.8359

Enagás, S.A. (BME:ENG) will increase its dividend from last year's comparable payment on the 6th of July to €0.8359. This takes the dividend yield to 9.5%, which shareholders will be pleased with.

Check out our latest analysis for Enagás

Enagás Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 120% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Over the next year, EPS is forecast to fall by 39.9%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 175%, which is definitely a bit high to be sustainable going forward.

Enagás Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from €1.12 total annually to €1.72. This works out to be a compound annual growth rate (CAGR) of approximately 4.4% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. So the company has struggled to grow its EPS yet it's still paying out 120% of its earnings. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

Enagás' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Enagás will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Enagás is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Enagás that investors should know about before committing capital to this stock. 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.