UniCredit (BIT:UCG) Is Increasing Its Dividend To €1.8

UniCredit S.p.A. (BIT:UCG) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of April to €1.8. This makes the dividend yield about the same as the industry average at 5.1%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that UniCredit's stock price has increased by 43% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for UniCredit

UniCredit's Payment Expected To Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time.

UniCredit has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but UniCredit's payout ratio of 35% is a good sign as this means that earnings decently cover dividends.

Over the next 3 years, EPS is forecast to expand by 15.8%. Analysts forecast the future payout ratio could be 50% over the same time horizon, which is a number we think the company can maintain.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was €0.90 in 2014, and the most recent fiscal year payment was €1.8. This works out to be a compound annual growth rate (CAGR) of approximately 7.1% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. UniCredit might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. UniCredit has seen EPS rising for the last five years, at 26% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

UniCredit Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that UniCredit is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for UniCredit (1 shouldn't be ignored!) 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.