Elica (BIT:ELC) Is Reducing Its Dividend To €0.04

Elica S.p.A. (BIT:ELC) is reducing its dividend to €0.04 on the 9th of Julywhich is 20% less than last year's comparable payment of €0.05. This means the annual payment is 3.6% of the current stock price, which is above the average for the industry.

Estimates Indicate Elica's Could Struggle to Maintain Dividend Payments In The Future

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Elica's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to fall by 71.1% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 121%, which could put the dividend under pressure if earnings don't start to improve.

Check out our latest analysis for Elica

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of €0.0269 in 2015 to the most recent total annual payment of €0.05. This means that it has been growing its distributions at 6.4% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Elica's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Elica has grown earnings per share at 21% per year over the past five years. Although earnings per share is up nicely Elica is paying out 125% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Our Thoughts On Elica's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Elica is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for Elica that you should be aware of before investing. Is Elica not quite the opportunity you were looking for? Why not check out our selection of top 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.