INA-Industrija nafte d.d's (ZGSE:INA) Shareholders Will Receive A Bigger Dividend Than Last Year

INA-Industrija nafte, d.d. (ZGSE:INA) will increase its dividend on the 12th of July to €24.00, which is 20% higher than last year's payment from the same period of €20.00. Despite this raise, the dividend yield of 4.1% is only a modest boost to shareholder returns.

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

INA-Industrija nafte d.d's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

EPS is set to grow by 10.7% over the next year if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 92%, which is on the higher side, but certainly still feasible.

INA-Industrija nafte d.d's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the dividend has gone from €1.94 total annually to €20.00. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

INA-Industrija nafte d.d Might Find It Hard To Grow Its Dividend

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. It's encouraging to see that INA-Industrija nafte d.d has been growing its earnings per share at 11% a year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

The Dividend Could Prove To Be Unreliable

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 we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. 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. As an example, we've identified 1 warning sign for INA-Industrija nafte d.d that you should be aware of before investing. 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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