Gaztransport & Technigaz (EPA:GTT) Will Pay A Smaller Dividend Than Last Year

Gaztransport & Technigaz SA (EPA:GTT) is reducing its dividend from last year's comparable payment to €1.55 on the 12th of June. This means that the annual payment is 3.0% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Gaztransport & Technigaz

Gaztransport & Technigaz's Earnings Easily Cover The Distributions

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 96% 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.

Over the next year, EPS is forecast to expand by 87.0%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 50% which brings it into quite a comfortable range.

Gaztransport & Technigaz's Dividend Has Lacked Consistency

It's comforting to see that Gaztransport & Technigaz has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the dividend has gone from €3.53 total annually to €3.10. The dividend has shrunk at around 1.6% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

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. Earnings has been rising at 2.1% per annum over the last five years, which admittedly is a bit slow. Slow growth and a high payout ratio could mean that Gaztransport & Technigaz has maxed out the amount that it has been able to pay to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Gaztransport & Technigaz that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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