Italtile (JSE:ITE) Is Due To Pay A Dividend Of ZAR0.27

The board of Italtile Limited (JSE:ITE) has announced that it will pay a dividend of ZAR0.27 per share on the 11th of March. However, the dividend yield of 4.8% still remains in a typical range for the industry.

See our latest analysis for Italtile

Italtile's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, prior to this announcement, Italtile's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

If the trend of the last few years continues, EPS will grow by 3.5% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from ZAR0.16 total annually to ZAR0.53. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings have grown at around 3.5% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

Overall, while it's not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

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. For example, we've picked out 1 warning sign for Italtile that investors should know about before committing capital to this stock. Is Italtile not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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