Terna (BIT:TRN) Is Increasing Its Dividend To €0.277

The board of Terna S.p.A. (BIT:TRN) has announced that it will be paying its dividend of €0.277 on the 25th of June, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 4.8%, which is fairly typical for the industry.

Terna's Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Terna's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 11.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 72%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Terna

Terna Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was €0.20 in 2015, and the most recent fiscal year payment was €0.396. This means that it has been growing its distributions at 7.1% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Terna Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Terna has impressed us by growing EPS at 6.8% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Terna's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Terna is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Terna has 2 warning signs (and 1 which is concerning) we think 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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