Reach Subsea's (OB:REACH) Shareholders Will Receive A Bigger Dividend Than Last Year

Reach Subsea ASA (OB:REACH) has announced that it will be increasing its dividend from last year's comparable payment on the 11th of June to NOK0.36. This takes the dividend yield to 5.5%, which shareholders will be pleased with.

See our latest analysis for Reach Subsea

Reach Subsea's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Reach Subsea was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 60.9%. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.

Reach Subsea's Dividend Has Lacked Consistency

Reach Subsea has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 5 years was NOK0.07 in 2019, and the most recent fiscal year payment was NOK0.36. This implies that the company grew its distributions at a yearly rate of about 39% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

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. Reach Subsea has seen EPS rising for the last five years, at 50% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

We Really Like Reach Subsea's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. For example, we've picked out 2 warning signs for Reach Subsea that investors should know about before committing capital to this stock. Is Reach Subsea not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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