Snam S.p.A.'s (BIT:SRG) dividend will be increasing to €0.16 on 22nd of June. This will take the annual payment from 4.9% to 4.9% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for Snam
Snam's Earnings Easily Cover the Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Snam's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Looking forward, earnings per share is forecast to fall by 26.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 77%, which is definitely on the higher side.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was €0.24 in 2012, and the most recent fiscal year payment was €0.26. Dividend payments have grown at less than 1% a year over this period. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Snam has impressed us by growing EPS at 19% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
We Really Like Snam's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend 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 Snam you should be aware of, and 1 of them is a bit unpleasant. Is Snam not quite the opportunity you were looking for? Why not check out our selection of top 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.
About BIT:SRG
Snam
Engages in the operation of natural gas transport and storage infrastructure.
Proven track record second-rate dividend payer.
