A2A (BIT:A2A) Is Increasing Its Dividend To €0.0958

A2A S.p.A. (BIT:A2A) will increase its dividend on the 22nd of May to €0.0958, which is 6.0% higher than last year's payment from the same period of €0.0904. This will take the dividend yield to an attractive 5.5%, providing a nice boost to shareholder returns.

See our latest analysis for A2A

A2A's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, A2A's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Over the next year, EPS is forecast to fall by 25.5%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 69%, which is comfortable for the company to continue in the future.

A2A Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was €0.033 in 2014, and the most recent fiscal year payment was €0.0904. This means that it has been growing its distributions at 11% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that A2A has grown earnings per share at 15% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think A2A will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think A2A is a great stock to add to your portfolio if income is your focus.

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 example, we've identified 3 warning signs for A2A (1 is a bit unpleasant!) 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.