Selvaag Bolig (OB:SBO) Has Announced A Dividend Of kr3.00

Selvaag Bolig ASA (OB:SBO) will pay a dividend of kr3.00 on the 5th of May. Based on this payment, the dividend yield on the company's stock will be 9.7%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Selvaag Bolig

Selvaag Bolig Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Selvaag Bolig was paying out quite a large proportion of both earnings and cash flow, with the dividend being 119% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Over the next year, EPS is forecast to fall by 33.3%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 167%, which is definitely a bit high to be sustainable going forward.

Selvaag Bolig's Dividend Has Lacked Consistency

It's comforting to see that Selvaag Bolig has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2014, the dividend has gone from kr0.50 to kr5.00. This means that it has been growing its distributions at 33% 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

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. We are encouraged to see that Selvaag Bolig has grown earnings per share at 11% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. 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. To that end, Selvaag Bolig has 4 warning signs (and 2 which are a bit unpleasant) we think you should know about. 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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