Naturgy Energy Group, S.A. (BME:NTGY) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Naturgy Energy Group, S.A. (BME:NTGY) is about to trade ex-dividend in the next 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Naturgy Energy Group's shares on or after the 30th of July will not receive the dividend, which will be paid on the 1st of August.

The company's next dividend payment will be €0.405 per share, and in the last 12 months, the company paid a total of €1.40 per share. Looking at the last 12 months of distributions, Naturgy Energy Group has a trailing yield of approximately 6.2% on its current stock price of €22.74. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Naturgy Energy Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Naturgy Energy Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Naturgy Energy Group paid out a comfortable 48% of its profit last year. A useful secondary check can be to evaluate whether Naturgy Energy Group generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 39% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Naturgy Energy Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Naturgy Energy Group's earnings have been skyrocketing, up 25% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Naturgy Energy Group has lifted its dividend by approximately 4.6% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Naturgy Energy Group is keeping back more of its profits to grow the business.

The Bottom Line

Is Naturgy Energy Group an attractive dividend stock, or better left on the shelf? Naturgy Energy Group has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Naturgy Energy Group, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Naturgy Energy Group is facing. For instance, we've identified 4 warning signs for Naturgy Energy Group (1 is potentially serious) you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com