Multiconsult's (OB:MULTI) Upcoming Dividend Will Be Larger Than Last Year's

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 makes the dividend yield 6.1%, which is above the industry average.

See our latest analysis for Multiconsult

Multiconsult Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. 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.

Over the next year, EPS is forecast to expand by 3.4%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 96%, which probably can't continue without putting some pressure on the balance sheet.

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 annual payment back then was NOK2.90, compared to the most recent full-year payment of NOK9.00. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year 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 Multiconsult has been growing its earnings per share at 30% a year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Multiconsult is not retaining those earnings to reinvest in growth.

Our Thoughts On Multiconsult's Dividend

Overall, we always like to see the dividend being raised, but we don't think Multiconsult will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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 example, we've picked out 1 warning sign for Multiconsult 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.