Italgas' (BIT:IG) Dividend Will Be Increased To €0.317

Italgas S.p.A. (BIT:IG) will increase its dividend from last year's comparable payment on the 24th of May to €0.317. This will take the annual payment to 5.6% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Italgas

Italgas' 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, Italgas' dividend was only 63% of earnings, however it was paying out 404% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 19.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which is in the range that makes us comfortable with the sustainability of the dividend.

Italgas Is Still Building Its Track Record

It is great to see that Italgas has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of €0.20 in 2017 to the most recent total annual payment of €0.317. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. Italgas has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

We Could See Italgas' Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Italgas has been growing its earnings per share at 6.9% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Italgas' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Italgas' payments are rock solid. While Italgas is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

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. To that end, Italgas has 2 warning signs (and 1 which doesn't sit too well with us) we think 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.