Veidekke's (OB:VEI) Dividend Will Be Increased To NOK7.90

Veidekke ASA (OB:VEI) will increase its dividend from last year's comparable payment on the 22nd of May to NOK7.90. This takes the dividend yield to 6.9%, which shareholders will be pleased with.

See our latest analysis for Veidekke

Veidekke's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 100% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 47%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

EPS is set to grow by 16.3% 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.

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 annual payment back then was NOK2.50, compared to the most recent full-year payment of NOK7.90. This means that it has been growing its distributions at 12% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth Could Be Constrained

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 Veidekke has been growing its earnings per share at 55% a 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.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Veidekke will make a great income stock. 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. We don't think Veidekke is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Veidekke that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.