Banco BPM's (BIT:BAMI) Dividend Will Be Increased To €0.23

Banco BPM S.p.A. (BIT:BAMI) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of April to €0.23. This takes the dividend yield to 5.8%, which shareholders will be pleased with.

Check out our latest analysis for Banco BPM

Banco BPM's Payment Expected To Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Banco BPM is just starting to establish itself as being able to pay dividends to shareholders, given its short 2-year history of distributing earnings. Diving into the company's earnings report, the payout ratio is set at 50%, which is a decent ratio of dividend payout to earnings, and may sustain future dividends if the company stays at its current trend.

Over the next 3 years, EPS is forecast to expand by 52.3%. Analysts estimate the future payout ratio will be 53% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Banco BPM Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The annual payment during the last 2 years was €0.06 in 2021, and the most recent fiscal year payment was €0.23. This implies that the company grew its distributions at a yearly rate of about 96% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Banco BPM's EPS has fallen by approximately 18% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Banco BPM's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Banco BPM's payments are rock solid. While Banco BPM is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Banco BPM that investors should take into consideration. 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.