Italgas' (BIT:IG) Upcoming Dividend Will Be Larger Than Last Year's

Italgas S.p.A.'s (BIT:IG) dividend will be increasing to €0.29 on 25th of May. This takes the dividend yield from 4.8% to 4.8%, which shareholders will be pleased with.

Check out our latest analysis for Italgas

Italgas' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last dividend, Italgas is earning enough to cover the payment, but the it makes up 1,195% of 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.

The next year is set to see EPS grow by 2.5%. If the dividend continues on this path, the payout ratio could be 61% by next year, which we think can be pretty sustainable going forward.

Italgas Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2017, the first annual payment was €0.20, compared to the most recent full-year payment of €0.29. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Growth of per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Italgas' Dividend

Overall, we always like to see the dividend being raised, but we don't think Italgas will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

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. Case in point: We've spotted 2 warning signs for Italgas (of which 1 can't be ignored!) 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.