Storebrand (OB:STB) Is Increasing Its Dividend To NOK4.70

Storebrand ASA's (OB:STB) dividend will be increasing from last year's payment of the same period to NOK4.70 on 24th of April. The payment will take the dividend yield to 3.8%, which is in line with the average for the industry.

Check out our latest analysis for Storebrand

Storebrand's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Storebrand's dividend was only 38% of earnings, however it was paying out 314% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share is forecast to fall by 7.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 44%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Storebrand's Dividend Has Lacked Consistency

It's comforting to see that Storebrand has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the annual payment back then was NOK1.55, compared to the most recent full-year payment of NOK4.70. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year 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.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Storebrand has seen EPS rising for the last five years, at 23% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Storebrand's payments are rock solid. While Storebrand is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 3 warning signs for Storebrand (of which 2 shouldn't be ignored!) you should know about. Is Storebrand not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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