INA-Industrija nafte d.d's (ZGSE:INA) Dividend Will Be Increased To €20.00

The board of INA-Industrija nafte, d.d. (ZGSE:INA) has announced that it will be paying its dividend of €20.00 on the 14th of July, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 2.9%.

View our latest analysis for INA-Industrija nafte d.d

INA-Industrija nafte d.d Doesn't Earn Enough To Cover Its Payments

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, INA-Industrija nafte d.d's dividend was only 33% of earnings, however it was paying out 255% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS could expand by 1.5% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 152%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was €4.47, compared to the most recent full-year payment of €12.6. This means that it has been growing its distributions at 11% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, INA-Industrija nafte d.d's EPS was effectively flat over the past five years, which could stop the company from paying more every year. While growth may be thin on the ground, INA-Industrija nafte d.d could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On INA-Industrija nafte d.d's Dividend

Overall, we always like to see the dividend being raised, but we don't think INA-Industrija nafte d.d will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think INA-Industrija nafte d.d is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for INA-Industrija nafte d.d that investors should know about before committing capital to this stock. 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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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.