Eni's (BIT:ENI) Dividend Will Be Increased To €0.26

The board of Eni S.p.A. (BIT:ENI) has announced that it will be paying its dividend of €0.26 on the 24th of September, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 7.0%.

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Eni's Payment Could Potentially Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. 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.

The next year is set to see EPS grow by 153.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

See our latest analysis for Eni

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was €1.12 in 2015, and the most recent fiscal year payment was €1.05. Payments have been decreasing at a very slow pace in this time period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

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. Eni has seen EPS rising for the last five years, at 30% per annum. EPS has been growing well, but Eni has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Eni's payments are rock solid. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Eni that investors should take into consideration. Is Eni not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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