Orange's (EPA:ORA) Upcoming Dividend Will Be Larger Than Last Year's

Orange S.A. (EPA:ORA) will increase its dividend from last year's comparable payment on the 6th of June to €0.42. This will take the dividend yield to an attractive 6.9%, providing a nice boost to shareholder returns.

See our latest analysis for Orange

Orange's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Orange's dividend made up quite a large proportion of earnings but only 45% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to rise by 46.3% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 58% which brings it into quite a comfortable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from €0.78 total annually to €0.72. Payments have been decreasing at a very slow pace in this time period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Orange Could Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Orange has been growing its earnings per share at 6.4% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Orange's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Orange that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.