Terna (BIT:TRN) Will Pay A Dividend Of €0.1192

Terna S.p.A.'s (BIT:TRN) investors are due to receive a payment of €0.1192 per share on 20th of November. The payment will take the dividend yield to 4.4%, which is in line with the average for the industry.

See our latest analysis for Terna

Terna's Future Dividend Projections Appear Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Terna was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 5.3% over the next year. If the dividend continues on this path, the payout ratio could be 66% by next year, which we think can be pretty sustainable going forward.

Terna Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was €0.20 in 2014, and the most recent fiscal year payment was €0.34. This works out to be a compound annual growth rate (CAGR) of approximately 5.4% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Terna May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. The company has been growing at a pretty soft per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Terna's Dividend

Overall, we always like to see the dividend being raised, but we don't think Terna will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

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. For example, we've identified 2 warning signs for Terna (1 is a bit concerning!) that you should be aware of before investing. Is Terna 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.