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. This takes the dividend yield from 2.9% to 2.9%, 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. Based on the last payment, Lerøy Seafood Group 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.

Looking forward, earnings per share is forecast to fall by 1.2% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 63%, which is comfortable for the company to continue in the future.

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 2012, the first annual payment was kr0.70, compared to the most recent full-year payment of kr2.50. This means that it has been growing its distributions at 14% per annum 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.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Lerøy Seafood Group's earnings per share has shrunk at approximately 4.8% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Lerøy Seafood Group will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Lerøy Seafood Group that investors need to be conscious of moving forward. 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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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.