Stock Analysis

Enagás' (BME:ENG) Upcoming Dividend Will Be Larger Than Last Year's

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The board of Enagás, S.A. (BME:ENG) has announced that it will be paying its dividend of €0.8359 on the 6th of July, an increased payment from last year's comparable dividend. This will take the annual payment to 9.8% of the stock price, which is above what most companies in the industry pay.

Check out 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. Based on the last payment, Enagás' profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS is forecast to fall by 40.1%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 170%, which could put the dividend under pressure if earnings don't start to improve.

BME:ENG Historic Dividend March 31st 2023

Enagás Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the annual payment back then was €1.12, compared to the most recent full-year payment of €1.72. This works out to be a compound annual growth rate (CAGR) of approximately 4.4% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. In the last five years, Enagás' earnings per share has shrunk at approximately 6.9% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Our Thoughts On Enagás' Dividend

Overall, we always like to see the dividend being raised, but we don't think Enagás will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Enagás has 3 warning signs (and 2 which are potentially serious) we think you should know about. Is Enagás not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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