Pirelli & C's (BIT:PIRC) Upcoming Dividend Will Be Larger Than Last Year's

The board of Pirelli & C. S.p.A. (BIT:PIRC) has announced that it will be paying its dividend of €0.25 on the 25th of June, an increased payment from last year's comparable dividend. This makes the dividend yield 4.0%, which is above the industry average.

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Pirelli & C's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Pirelli & C's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 33.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 41% by next year, which is in a pretty sustainable range.

See our latest analysis for Pirelli & C

Pirelli & C's Dividend Has Lacked Consistency

Pirelli & C has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 6 years was €0.177 in 2019, and the most recent fiscal year payment was €0.25. This means that it has been growing its distributions at 5.9% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Pirelli & C has seen EPS rising for the last five years, at 5.5% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On Pirelli & C's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

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. As an example, we've identified 1 warning sign for Pirelli & C that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.