Protector Forsikring's (OB:PROT) Dividend Will Be Increased To NOK2.00

The board of Protector Forsikring ASA (OB:PROT) has announced that it will be paying its dividend of NOK2.00 on the 11th of May, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 5.5%, providing a nice boost to shareholder returns.

See our latest analysis for Protector Forsikring

Protector Forsikring's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the dividend made up 77% of cash flows, but a higher proportion of net income. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Over the next year, EPS is forecast to expand by 5.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, 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 annual payment during the last 10 years was NOK1.20 in 2013, and the most recent fiscal year payment was NOK8.50. This means that it has been growing its distributions at 22% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Protector Forsikring has impressed us by growing EPS at 34% per year over the past five years. Although earnings per share is up nicely Protector Forsikring is paying out 118% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Protector Forsikring's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Protector Forsikring (1 can't be ignored!) that you should be aware of before investing. Is Protector Forsikring 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.