Storebrand's (OB:STB) Dividend Will Be Increased To NOK4.70

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

View 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. Based on the last payment, Storebrand was paying only paying out a fraction of earnings, but the payment was a massive 314% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to fall by 7.3% over the next 12 months. 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

Storebrand has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 8 years was NOK1.55 in 2017, and the most recent fiscal year payment was NOK4.70. This means that it has been growing its distributions at 15% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Storebrand has impressed us by growing EPS at 23% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Storebrand will make a great income stock. While Storebrand is earning enough to cover the payments, the cash flows are lacking. We don't think Storebrand is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Storebrand you should be aware of, and 2 of them are potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.