Veidekke (OB:VEI) Is Increasing Its Dividend To NOK9.00

Veidekke ASA's (OB:VEI) dividend will be increasing from last year's payment of the same period to NOK9.00 on 21st of May. This makes the dividend yield 6.2%, which is above the industry average.

Our free stock report includes 1 warning sign investors should be aware of before investing in Veidekke. Read for free now.

Veidekke's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, the company's dividend was higher than its profits, and made up 79% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 12.9%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 93% - on the higher side, but we wouldn't necessarily say this is unsustainable.

View our latest analysis for Veidekke

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 2015, the dividend has gone from NOK3.50 total annually to NOK9.00. This implies that the company grew its distributions at a yearly rate of about 9.9% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Veidekke's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Veidekke has grown earnings per share at 26% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

Veidekke's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Veidekke that investors should take into consideration. Is Veidekke not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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