Gaztransport & Technigaz's (EPA:GTT) Dividend Is Being Reduced To €1.75

Gaztransport & Technigaz SA's (EPA:GTT) dividend is being reduced to €1.75 on the 8th of June. Based on this payment, the dividend yield will be 2.7%, which is lower than the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Gaztransport & Technigaz's stock price has increased by 41% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Gaztransport & Technigaz

Gaztransport & Technigaz Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Gaztransport & Technigaz's dividend made up quite a large proportion of earnings but only 58% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 5.9% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 97%, which is definitely a bit high to be sustainable going forward.

Gaztransport & Technigaz's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The dividend has gone from €3.53 in 2014 to the most recent annual payment of €3.10. This works out to be a decline of approximately 1.6% per year over that time. 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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been crawling upwards at 2.4% per year. Gaztransport & Technigaz's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Our Thoughts On Gaztransport & Technigaz's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Taking the debate a bit further, we've identified 2 warning signs for Gaztransport & Technigaz that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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