Multiconsult (OB:MULTI) Is Increasing Its Dividend To NOK9.00

The board of Multiconsult ASA (OB:MULTI) has announced that it will be paying its dividend of NOK9.00 on the 24th of April, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 5.8%, providing a nice boost to shareholder returns.

Check out our latest analysis for Multiconsult

Multiconsult Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Multiconsult was paying out 81% of earnings, but a comparatively small 47% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

The next 12 months is set to see EPS grow by 4.2%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 96% over the next year.

Multiconsult's Dividend Has Lacked Consistency

Looking back, Multiconsult's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of NOK2.90 in 2016 to the most recent total annual payment of NOK9.00. This works out to be a compound annual growth rate (CAGR) of approximately 18% 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 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. Multiconsult has seen EPS rising for the last five years, at 30% per annum. However, Multiconsult isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Multiconsult's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Multiconsult that investors should take into consideration. Is Multiconsult not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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