Yara International (OB:YAR) Is Paying Out A Larger Dividend Than Last Year

Yara International ASA's (OB:YAR) dividend will be increasing to kr30.00 on 20th of May. This makes the dividend yield 10%, which is above the industry average.

View our latest analysis for Yara International

Yara International Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Yara International's dividend was only 63% of earnings, however it was paying out 427% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next 12 months is set to see EPS grow by 65.4%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was US$0.91 in 2012, and the most recent fiscal year payment was US$5.28. This works out to be a compound annual growth rate (CAGR) of approximately 19% 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 Looks Likely To Grow

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. Yara International has impressed us by growing EPS at 19% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Yara International's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Yara International's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Yara International (of which 1 is potentially serious!) you should know about. Is Yara International 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.