ACEA S.p.A.'s (BIT:ACE) investors are due to receive a payment of €0.85 per share on 21st of June. The dividend yield will be 6.3% based on this payment which is still above the industry average.
See our latest analysis for ACEA
ACEA's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, ACEA's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Over the next year, EPS is forecast to expand by 9.5%. If the dividend continues on this path, the payout ratio could be 63% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was €0.42, compared to the most recent full-year payment of €0.85. This implies that the company grew its distributions at a yearly rate of about 7.3% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
We Could See ACEA's Dividend Growing
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. ACEA has seen EPS rising for the last five years, at 9.1% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On ACEA's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for ACEA (1 can't be ignored!) that you should be aware of before investing. Is ACEA 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:ACE
Solid track record, good value and pays a dividend.
