Multiconsult ASA (OB:MULTI) is reducing its dividend to kr6.00 on the 21st of April. This means the annual payment is 4.2% of the current stock price, which is above the average for the industry.
Multiconsult's Earnings Easily Cover the Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Multiconsult's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Looking forward, earnings per share is forecast to rise by 16.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 69% by next year, which is in a pretty sustainable range.
Multiconsult's Dividend Has Lacked Consistency
It's comforting to see that Multiconsult has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2016, the dividend has gone from kr2.90 to kr6.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Multiconsult has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth May Be Hard To Achieve
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. Unfortunately, Multiconsult's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Growth of 1.0% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
Even though the dividend was cut this year, we think Multiconsult has the ability to make consistent payments in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 Multiconsult 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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