ACEA (BIT:ACE) Is Increasing Its Dividend To €0.95

ACEA S.p.A.'s (BIT:ACE) periodic dividend will be increasing on the 25th of June to €0.95, with investors receiving 8.0% more than last year's €0.88. This takes the annual payment to 5.0% of the current stock price, which is about average for the industry.

Check out our latest analysis for ACEA

ACEA's Future Dividend Projections Appear Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, ACEA's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

EPS is set to fall by 1.7% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 67%, which we are pretty comfortable with and we think is feasible on an earnings basis.

ACEA Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of €0.42 in 2015 to the most recent total annual payment of €0.88. This implies that the company grew its distributions at a yearly rate of about 7.7% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, ACEA has only grown its earnings per share at 3.2% per annum over the past five years. The company has been growing at a pretty soft 3.2% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

We Really Like ACEA's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. As an example, we've identified 1 warning sign for ACEA that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.