Banca Mediolanum (BIT:BMED) Will Pay A Larger Dividend Than Last Year At €0.42

The board of Banca Mediolanum S.p.A. (BIT:BMED) has announced that it will be paying its dividend of €0.42 on the 24th of April, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 8.5%, providing a nice boost to shareholder returns.

See our latest analysis for Banca Mediolanum

Banca Mediolanum's Dividend Forecasted To Be Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Having paid out dividends for 8 years, Banca Mediolanum has a good history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Banca Mediolanum's payout ratio of 63% is a good sign for current shareholders as this means that earnings decently cover dividends.

The next 3 years are set to see EPS grow by 0.5%. Analysts estimate the future payout ratio will be 71% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Banca Mediolanum's Dividend Has Lacked Consistency

Looking back, Banca Mediolanum's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of €0.28 in 2016 to the most recent total annual payment of €0.84. This means that it has been growing its distributions at 15% per annum over that time. Banca Mediolanum 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 Looks Likely To Grow

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. It's encouraging to see that Banca Mediolanum has been growing its earnings per share at 26% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Banca Mediolanum could prove to be a strong dividend payer.

Banca Mediolanum Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Banca Mediolanum that investors should know about before committing capital to this stock. Is Banca Mediolanum 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.