Orkla's (OB:ORK) Dividend Will Be Increased 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 8.7%, which shareholders will be pleased with.

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Orkla's Future Dividends May Potentially Be At Risk

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment was quite easily covered by earnings, but it made up 131% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Earnings per share is forecast to rise by 19.9% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 141%, which is a bit high and could start applying pressure to the balance sheet.

View our latest analysis for Orkla

Orkla Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of NOK2.50 in 2015 to the most recent total annual payment of NOK10.00. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Orkla Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Orkla has grown earnings per share at 9.7% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Orkla's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Orkla is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Orkla that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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