ACEA S.p.A.'s (BIT:ACE) investors are due to receive a payment of €0.85 per share on 21st of June. This means the annual payment is 6.8% of the current stock price, which is above the average for the industry.
View our latest analysis for ACEA
ACEA's Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. 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.
The next year is set to see EPS grow by 2.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from €0.28 total annually to €0.85. This means that it has been growing its distributions at 12% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
ACEA Could Grow Its Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that ACEA has been growing its earnings per share at 8.5% a 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 don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While ACEA is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for ACEA (of which 1 is concerning!) you should know about. 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.
About BIT:ACE
Solid track record, good value and pays a dividend.
