Poste Italiane, the unassuming giant of Italian commerce, released their Q1 2024 results with an air of quiet confidence. Revenues are up, costs are managed, and business units are humming along. But beneath the surface of this seemingly routine report, a seismic shift is taking place, one that has the potential to reshape the company's dividend trajectory and send shockwaves through the Italian market.

The key lies in Poste Italiane's newly renewed Postal Savings Contract with CDP, a three-year agreement spanning 2024-2026. While the CEO, Matteo del Fante, downplayed the potential for the contract to drive the company close to the top of their planned remuneration range (€1.6 billion - €1.9 billion), the very existence of this renewed agreement, finalized amidst a challenging market environment, speaks volumes.

Consider this: 2023 saw massive redemptions, maturities, and early redemptions in the postal savings market. Banks across Italy struggled to retain deposits as BTP Valore bonds, a new government bond offering attractive returns, siphoned away retail liquidity. Yet, Poste Italiane not only weathered the storm but managed to negotiate a new deal with CDP that promises "continuity slash marginal improvement" over the previous year's impressive €1.73 billion in postal savings revenue.

This suggests a deep, underlying confidence in Poste Italiane's ability to attract and retain postal savings deposits, even in the face of fierce competition. Del Fante himself highlighted the focus on "feasible" targets, indicating a realistic assessment of the company's capabilities in the current market.

Here's where the dividend tsunami hypothesis comes in. Poste Italiane has a history of conservatism when it comes to dividend payouts. They moved away from their initial 80% payout policy in favor of steady, incremental increases, always prioritizing cash flow visibility. But with the increased certainty provided by the new CDP agreement, coupled with the already robust profitability across other business segments (Insurance Services, Financial Services, and PostePay all delivering solid results), the company is sitting on a potential cash windfall.

Projected Dividend Growth

The following chart illustrates a potential scenario for Poste Italiane's dividend growth based on a hypothetical increase in the payout ratio.

Note: This is a hypothetical projection and actual dividend payouts may vary.

Let's crunch some numbers. The current proposed dividend of €0.80 per share translates to a total payout of over €1 billion. This represents a conservative 53% payout ratio. With increased visibility on postal savings revenue, and continued growth across other segments, it's not unreasonable to project a scenario where Poste Italiane's payout ratio could rise to the 75% mark, currently being adopted by several Italian insurance companies.

A 75% payout ratio on projected 2024 earnings (assuming even modest growth from 2023's €1.9 billion net profit) would translate to a dividend of approximately €1.20 per share. This represents a potential 50% increase from the current dividend level, a staggering figure for a company traditionally known for its measured approach.

Of course, this is just a hypothesis, and much will depend on the specifics of the new CDP agreement and the company's overall financial performance in the coming quarters. However, the signals are clear: Poste Italiane is entering a new era, one marked by financial strength, operational resilience, and a renewed focus on shareholder remuneration. The potential for a dividend tsunami is real, and investors would be wise to keep a close eye on this Italian giant as it navigates the choppy waters of the European market.

"Fun Fact: Did you know that Poste Italiane is older than Italy itself? The company was founded in 1862, a year before the official unification of Italy!"