Orkla (OB:ORK) Is Increasing Its Dividend To NOK10.00

Orkla ASA (OB:ORK) has announced that it will be increasing its dividend from last year's comparable payment on the 6th of May to NOK10.00. This takes the dividend yield to 9.1%, which shareholders will be pleased with.

Estimates Indicate Orkla's Could Struggle to Maintain Dividend Payments In The Future

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Orkla's dividend was only 66% of earnings, however it was paying out 130% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 19.9%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 141%, which probably can't continue without putting some pressure on the balance sheet.

Check out our latest analysis for Orkla

Orkla Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from NOK2.50 total annually to NOK10.00. This means that it has been growing its distributions at 15% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Orkla Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Orkla has impressed us by growing EPS at 9.6% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Orkla will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Orkla that you should be aware of before investing. 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.