Italgas (BIT:IG) Will Pay A Larger Dividend Than Last Year At €0.317

The board of Italgas S.p.A. (BIT:IG) has announced that it will be paying its dividend of €0.317 on the 24th of May, an increased payment from last year's comparable dividend. This takes the dividend yield to 5.4%, which shareholders will be pleased with.

See our latest analysis for Italgas

Italgas' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Italgas' dividend was only 61% of earnings, however it was paying out 404% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 15.8%. If the dividend continues on this path, the payout ratio could be 53% 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 dividend has gone from €0.20 total annually to €0.317. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. 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's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Italgas is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

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 the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Italgas is a great stock to add to your portfolio if income is your focus.

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. To that end, Italgas has 2 warning signs (and 1 which is concerning) we think you should know about. Is Italgas not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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