Technogym (BIT:TGYM) Is Paying Out A Larger Dividend Than Last Year

Technogym S.p.A.'s (BIT:TGYM) dividend will be increasing from last year's payment of the same period to €0.26 on 22nd of May. This makes the dividend yield about the same as the industry average at 2.9%.

View our latest analysis for Technogym

Technogym's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Before this announcement, Technogym was paying out 71% of earnings, but a comparatively small 73% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 49.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 54%, which is in the range that makes us comfortable with the sustainability of the dividend.

Technogym's Dividend Has Lacked Consistency

It's comforting to see that Technogym has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of €0.065 in 2017 to the most recent total annual payment of €0.26. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Technogym has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Technogym's EPS has declined at around 4.4% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. 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 Technogym's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Technogym that investors should know about before committing capital to this stock. 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.