Stock Analysis

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

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ENAV S.p.A. (BIT:ENAV) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of October to €0.1967. This takes the dividend yield to 5.1%, which shareholders will be pleased with.

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ENAV Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, ENAV's dividend was only 56% of earnings, however it was paying out 304% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next 12 months is set to see EPS grow by 5.4%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 97% over the next year.

BIT:ENAV Historic Dividend March 18th 2023

ENAV's Dividend Has Lacked Consistency

It's comforting to see that ENAV has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the annual payment back then was €0.176, compared to the most recent full-year payment of €0.1967. This means that it has been growing its distributions at 1.9% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that ENAV's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. ENAV is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On ENAV's Dividend

In summary, while it's always good to see the dividend being raised, we don't think ENAV's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 1 warning sign for ENAV that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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