Arendals Fossekompani's (OB:AFK) Dividend Will Be NOK1.00

Arendals Fossekompani ASA (OB:AFK) will pay a dividend of NOK1.00 on the 9th of September. The dividend yield is 2.5% based on this payment, which is a little bit low compared to the other companies in the industry.

View our latest analysis for Arendals Fossekompani

Arendals Fossekompani's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Despite not generating a profit, Arendals Fossekompani is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Over the next year, EPS is forecast to expand by 164.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 NOK2.40 total annually to NOK4.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth Potential Is Shaky

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. Arendals Fossekompani's earnings per share has shrunk at 51% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

We're Not Big Fans Of Arendals Fossekompani's Dividend

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Arendals Fossekompani stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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