Lerøy Seafood Group (OB:LSG) Has Announced That It Will Be Increasing Its Dividend To kr2.50

Lerøy Seafood Group ASA (OB:LSG) has announced that it will be increasing its dividend on the 1st of January to kr2.50, which will be 25% higher than last year. This takes the dividend yield from 2.6% to 3.2%, which shareholders will be pleased with.

View our latest analysis for Lerøy Seafood Group

Lerøy Seafood Group's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Lerøy Seafood Group's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 59.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 60% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from kr1.00 to kr2.00. This means that it has been growing its distributions at 7.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Lerøy Seafood Group might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Come By

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. Lerøy Seafood Group has seen earnings per share falling at 5.7% 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Lerøy Seafood Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Lerøy Seafood Group's payments are rock solid. 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. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Lerøy Seafood Group that investors should take into consideration. Is Lerøy Seafood Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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