Naturgy Energy Group's (BME:NTGY) Dividend Will Be Reduced To €0.324

Naturgy Energy Group, S.A. (BME:NTGY) is reducing its dividend from last year's comparable payment to €0.324 on the 9th of April. This means the annual payment is 6.8% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Naturgy Energy Group

Naturgy Energy Group's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Naturgy Energy Group's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to fall by 25.4%. If recent patterns in the dividend continue, we could see the payout ratio reaching 75% in the next 12 months, which is on the higher end of the range we would say is sustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of €1.01 in 2014 to the most recent total annual payment of €1.40. This means that it has been growing its distributions at 3.4% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Naturgy Energy Group has seen EPS rising for the last five years, at 40% per annum. Naturgy Energy Group is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We Really Like Naturgy Energy Group's Dividend

Overall, we think that Naturgy Energy Group could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Naturgy Energy Group (of which 1 is concerning!) you should know about. Is Naturgy Energy Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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