Eni (BIT:ENI) Has Announced That It Will Be Increasing Its Dividend To €0.26

Eni S.p.A. (BIT:ENI) will increase its dividend from last year's comparable payment on the 24th of September to €0.26. The payment will take the dividend yield to 7.0%, which is in line with the average for the industry.

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Eni's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, the company's dividend was higher than its profits, and made up 79% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Over the next year, EPS is forecast to expand by 148.6%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 53% which would be quite comfortable going to take the dividend forward.

Check out our latest analysis for Eni

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was €1.12, compared to the most recent full-year payment of €1.05. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Eni has been growing its earnings per share at 30% a year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Eni will make a great income stock. Strong earnings growth means Eni has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Eni that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.