Ermenegildo Zegna (NYSE:ZGN) Is Increasing Its Dividend To €0.12

Ermenegildo Zegna N.V.'s (NYSE:ZGN) dividend will be increasing from last year's payment of the same period to €0.12 on 30th of July. Although the dividend is now higher, the yield is only 1.1%, which is below the industry average.

See our latest analysis for Ermenegildo Zegna

Ermenegildo Zegna's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, Ermenegildo Zegna's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 48.5%. If the dividend continues on this path, the payout ratio could be 17% by next year, which we think can be pretty sustainable going forward.

Ermenegildo Zegna Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The dividend has gone from an annual total of €0.09 in 2022 to the most recent total annual payment of €0.12. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Ermenegildo Zegna's earnings per share has shrunk at 45% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Our Thoughts On Ermenegildo Zegna's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. See if the 5 analysts are forecasting a turnaround in our free collection of analyst estimates here. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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