P/F Bakkafrost (OB:BAKKA) Is Paying Out Less In Dividends Than Last Year

P/F Bakkafrost (OB:BAKKA) has announced that on 21st of May, it will be paying a dividend ofDKK13.69, which a reduction from last year's comparable dividend. This means that the dividend yield is 2.1%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for P/F Bakkafrost

P/F Bakkafrost's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, P/F Bakkafrost was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 68.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from DKK4.50 total annually to DKK8.70. This means that it has been growing its distributions at 6.8% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. P/F Bakkafrost has seen earnings per share falling at 3.9% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

P/F Bakkafrost's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think P/F Bakkafrost is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Given that earnings are not growing, the dividend does not look nearly so attractive. See if the 7 analysts are forecasting a turnaround in our free collection of analyst estimates here. 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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