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

Veidekke ASA (OB:VEI) has announced that it will be increasing its dividend from last year's comparable payment on the 21st of May to NOK9.00. This will take the dividend yield to an attractive 5.6%, providing a nice boost to shareholder returns.

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

Veidekke's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 96% of what it was earning and 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.

Earnings per share is forecast to rise by 12.9% over the next year. 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.

Check out our latest analysis for Veidekke

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was NOK3.50 in 2015, and the most recent fiscal year payment was NOK9.00. This means that it has been growing its distributions at 9.9% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Veidekke has seen EPS rising for the last five years, at 26% per annum. While EPS is growing rapidly, Veidekke paid out a very high 96% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

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. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Veidekke that investors need to be conscious of moving forward. Is Veidekke not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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