Terna - Rete Elettrica Nazionale Società per Azioni (BIT:TRN) Is Paying Out A Larger Dividend Than Last Year

Terna - Rete Elettrica Nazionale Società per Azioni (BIT:TRN) has announced that it will be increasing its dividend on the 22nd of June to €0.19. The announced payment will take the dividend yield to 4.1%, which is in line with the average for the industry.

Check out our latest analysis for Terna - Rete Elettrica Nazionale Società per Azioni

Terna - Rete Elettrica Nazionale Società per Azioni's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Terna - Rete Elettrica Nazionale Società per Azioni was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. This is a pretty unsustainable practice, and could be risky if continued for the long term.

EPS is set to fall by 4.8% over the next 12 months. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 83%, meaning that most of the company's earnings are being paid out to shareholders.

Terna - Rete Elettrica Nazionale Società per Azioni Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was €0.21 in 2012, and the most recent fiscal year payment was €0.29. This implies that the company grew its distributions at a yearly rate of about 3.3% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 4.5% a year for the past five years, which isn't massive but still better than seeing them shrink. Slow growth and a high payout ratio could mean that Terna - Rete Elettrica Nazionale Società per Azioni has maxed out the amount that it has been able to pay to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Terna - Rete Elettrica Nazionale Società per Azioni 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. However, there are other things to consider for investors when analysing stock performance. To that end, Terna - Rete Elettrica Nazionale Società per Azioni has 2 warning signs (and 1 which can't be ignored) we think you should know about. Is Terna - Rete Elettrica Nazionale Società per Azioni 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.