Readers hoping to buy Gaztransport & Technigaz SA (EPA:GTT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 25th of September in order to be eligible for this dividend, which will be paid on the 27th of September.
Gaztransport & Technigaz’s next dividend payment will be €1.5 per share. Last year, in total, the company distributed €3.3 to shareholders. Based on the last year’s worth of payments, Gaztransport & Technigaz stock has a trailing yield of around 3.8% on the current share price of €85.85. If you buy this business for its dividend, you should have an idea of whether Gaztransport & Technigaz’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Gaztransport & Technigaz paid out 99% of its income as dividends, which is above a level that we’re comfortable with, especially if the company needs to reinvest in its business. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 78% of its free cash flow as dividends, which is within usual limits but will limit the company’s ability to lift the dividend if there’s no growth.
It’s good to see that while Gaztransport & Technigaz’s dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we’d be concerned about whether the dividend is sustainable in a downturn.
Have Earnings And Dividends Been Growing?
Companies that aren’t growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we’re not enthused to see that Gaztransport & Technigaz’s earnings per share have remained effectively flat over the past five years. We’d take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Gaztransport & Technigaz has seen its dividend decline 1.4% per annum on average over the past five years, which is not great to see.
Should investors buy Gaztransport & Technigaz for the upcoming dividend? Flat earnings per share and a high payout ratio are not what we like to see, although at least it paid out a lower percentage of its free cash flow. Overall it doesn’t look like the most suitable dividend stock for a long-term buy and hold investor.
Curious what other investors think of Gaztransport & Technigaz? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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