Eni (BIT:ENI) Is Paying Out A Larger Dividend Than Last Year

Eni S.p.A. (BIT:ENI) has announced that it will be increasing its periodic dividend on the 25th of September to €0.25, which will be 4.2% higher than last year's comparable payment amount of €0.24. Based on this payment, the dividend yield for the company will be 6.6%, which is fairly typical for the industry.

See our latest analysis for Eni

Eni's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Eni's dividend made up quite a large proportion of earnings but only 53% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

The next year is set to see EPS grow by 75.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 44% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was €1.10, compared to the most recent full-year payment of €0.94. The dividend has shrunk at around 1.6% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Eni May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 5.0% per year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. Overall, we don't think this company has the makings of a good 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. Taking the debate a bit further, we've identified 2 warning signs for Eni that investors need to be conscious of moving forward. Is Eni 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.