Italgas (BIT:IG) Will Pay A Larger Dividend Than Last Year At €0.406

Italgas S.p.A.'s (BIT:IG) dividend will be increasing from last year's payment of the same period to €0.406 on 21st of May. This takes the dividend yield to 6.3%, which shareholders will be pleased with.

Italgas' Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Italgas' dividend was only 69% of earnings, however it was paying out 153% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 20.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 55% by next year, which is in a pretty sustainable range.

View our latest analysis for Italgas

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. Since 2017, the annual payment back then was €0.20, compared to the most recent full-year payment of €0.406. This means that it has been growing its distributions at 9.3% per annum 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's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 2.6% a year for the past five years, which isn't massive but still better than seeing them shrink. Italgas is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

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 the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Italgas you should be aware of, and 1 of them is a bit concerning. Is Italgas not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.