Italgas (BIT:IG) Is Increasing Its Dividend To €0.352

Italgas S.p.A.'s (BIT:IG) dividend will be increasing from last year's payment of the same period to €0.352 on 22nd of May. This will take the annual payment to 7.0% of the stock price, which is above what most companies in the industry pay.

See 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. Before making this announcement, Italgas was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 16.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 51% by next year, which is in a pretty sustainable range.

Italgas Doesn't Have A Long Payment History

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 annual payment during the last 7 years was €0.20 in 2017, and the most recent fiscal year payment was €0.352. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% a year over that time. Italgas has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

The Dividend Has Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Italgas has grown earnings per share at 6.8% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Italgas (1 shouldn't be ignored!) 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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