Orkla's (OB:ORK) Upcoming Dividend Will Be Larger Than Last Year's

Orkla ASA (OB:ORK) has announced that it will be increasing its dividend on the 1st of January to kr3.00. This makes the dividend yield 3.6%, which is above the industry average.

View our latest analysis for Orkla

Orkla's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite comfortably covered by Orkla's earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Looking forward, earnings per share is forecast to rise by 5.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 60%, which is in the range that makes us comfortable with the sustainability of the dividend.

Orkla Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from kr2.50 in 2012 to the most recent annual payment of kr3.00. This implies that the company grew its distributions at a yearly rate of about 1.8% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

We Could See Orkla's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Orkla has seen EPS rising for the last five years, at 7.6% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On Orkla's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Orkla's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 7 Orkla analysts we track are forecasting continued growth with our free report on analyst estimates for the company. We have also put together a list of global stocks with a solid dividend.

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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.