A2A S.p.A. (BIT:A2A) will increase its dividend on the 25th of May to €0.09, which is 13% higher than last year. This makes the dividend yield 5.8%, which is above the industry average.
Check out our latest analysis for A2A
A2A's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. A2A was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 75% indicates it is more focused on returning cash to shareholders than growing the business.
EPS is set to fall by 20.9% over the next 12 months. If recent patterns in the dividend continue, we could see the payout ratio reaching 78% in the next 12 months, which is on the higher end of the range we would say is sustainable.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from €0.06 in 2012 to the most recent annual payment of €0.082. This means that it has been growing its distributions at 3.2% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
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 A2A has been growing its earnings per share at 19% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think A2A's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments A2A has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, A2A has 3 warning signs (and 1 which is concerning) we think you should know about. Is A2A 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.
About BIT:A2A
A2A
Engages in the production, sale, and distribution of gas and electricity, and district heating in Italy and internationally.
Undervalued with solid track record and pays a dividend.
