Gaztransport & Technigaz (EPA:GTT) Is Increasing Its Dividend To €2.51

Gaztransport & Technigaz SA (EPA:GTT) will increase its dividend from last year's comparable payment on the 20th of June to €2.51. Although the dividend is now higher, the yield is only 3.6%, which is below the industry average.

View our latest analysis for Gaztransport & Technigaz

Gaztransport & Technigaz's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Gaztransport & Technigaz's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 107% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

The next year is set to see EPS grow by 79.6%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 46% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from €3.53 total annually to €5.02. This implies that the company grew its distributions at a yearly rate of about 3.6% over that duration. 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.

We Could See Gaztransport & Technigaz's Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Gaztransport & Technigaz has seen EPS rising for the last five years, at 7.2% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Gaztransport & Technigaz's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Gaztransport & Technigaz you should be aware of, and 1 of them doesn't sit too well with us. Is Gaztransport & Technigaz not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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