There's A Lot To Like About Naturgy Energy Group's (BME:NTGY) Upcoming €0.486 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Naturgy Energy Group, S.A. (BME:NTGY) is about to trade ex-dividend in the next 3 days. The ex-dividend date is two business days before a company's record date in most cases, 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 can take two business days or more to settle. Meaning, you will need to purchase Naturgy Energy Group's shares before the 7th of April to receive the dividend, which will be paid on the 9th of April.

The company's next dividend payment will be €0.486 per share, and in the last 12 months, the company paid a total of €1.60 per share. Calculating the last year's worth of payments shows that Naturgy Energy Group has a trailing yield of 6.1% on the current share price of €26.06. If you buy this business for its dividend, you should have an idea of whether Naturgy Energy Group's dividend is reliable and sustainable. As a result, readers should always check whether Naturgy Energy Group has been able to grow its dividends, or if the dividend might be cut.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Naturgy Energy Group paying out a modest 50% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 54% of its free cash flow as dividends, within the usual range for most companies.

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.

See our latest analysis for Naturgy Energy Group

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Naturgy Energy Group earnings per share are up 8.5% per annum over the last five years. Decent historical earnings per share growth suggests Naturgy Energy Group has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

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 6.0% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Naturgy Energy Group? Earnings per share growth has been modest, and it's interesting that Naturgy Energy Group is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, it's hard to get excited about Naturgy Energy Group from a dividend perspective.

While it's tempting to invest in Naturgy Energy Group for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 3 warning signs for Naturgy Energy Group (1 is a bit concerning) 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.