The board of SalMar ASA (OB:SALM) has announced that it will pay a dividend on the 22nd of June, with investors receiving kr20.00 per share. This payment means that the dividend yield will be 2.6%, which is around the industry average.
View our latest analysis for SalMar
SalMar's Earnings Easily Cover the Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, SalMar's was paying out quite a large proportion of earnings and 81% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.
Over the next year, EPS is forecast to expand by 35.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 73%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from kr4.00 in 2012 to the most recent annual payment of kr20.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, SalMar's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.
SalMar's Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about SalMar's payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think SalMar is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for SalMar that investors should take into consideration. 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.
About OB:SALM
SalMar
An aquaculture company, produces and sells farmed salmon in Asia, North America, Europe, and internationally.
High growth potential with solid track record.
