Stock Analysis

EL.En (BIT:ELN) Will Pay A Larger Dividend Than Last Year At €0.22

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The board of EL.En. S.p.A. (BIT:ELN) has announced that it will be paying its dividend of €0.22 on the 31st of May, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 1.7%, which is fairly typical for the industry.

View our latest analysis for EL.En

EL.En's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, EL.En's dividend was only 31% of earnings, however it was paying out 831% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 27.8% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

BIT:ELN Historic Dividend March 19th 2023

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 2013, the dividend has gone from €0.0313 total annually to €0.22. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that EL.En has been growing its earnings per share at 28% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On EL.En's Dividend

In summary, while it's always good to see the dividend being raised, we don't think EL.En's payments are rock solid. While EL.En is earning enough to cover the payments, the cash flows are lacking. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for EL.En (1 is a bit concerning!) 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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