Eni's dividend growth is sustainable
Oil price still a key factor for profits, satellite business model allowed for dividends and buybacks
Eni is an evergreen stock in Italian portfolios, one of those that enjoyed great success during the privatisation period. The outlook, according to analysts, is still good: consensus converges on a twelve-month target price of EUR 17 and a hold rating, i.e., hold the stock.
The performance so far
Those who bought Eni on placement in 1995 earned over 11% per year, including the 23 euro dividends paid since then (assuming they were collected and not reinvested). In 2007, it went up to EUR 28. On the eve of the global financial crisis, the economy appeared solid, oil prices were expected to rise, and the oil sector was considered strategic and defensive.
In this context, Eni liked it because it is an integrated major, had high margins on extraction, strong cash generation and record profits. Currently, Eni trades above EUR 18 and benefits indirectly from the tensions between Iran and the United States, which are fuelling speculative buying on crude oil in view of possible supply shortages or sanctions. Indeed, the price of a barrel is one of the main drivers of oil companies' profits.
The Future
Paolo Citi, analyst at Intermonte, explains that the oil sector is back in the spotlight due to geopolitical risk, which has overshadowed concerns about oversupply. In addition, the intense cold of winter, which affected many geographical areas, was a further supporting factor for fossil fuels, especially gas.
In the coming months, if geopolitical tensions abate, crude oil could suffer a new phase of weakness, while gas is expected to suffer in the medium term due to the increased supply of liquid natural gas, which could weigh on the prices of the majors in the sector, such as Shell, Bp, Total and Repsol in Europe or Exxon Mobil, Conoco and Chevron in the US.
