Selvaag Bolig (OB:SBO) Will Pay A Dividend Of kr3.00

Selvaag Bolig ASA's (OB:SBO) investors are due to receive a payment of kr3.00 per share on 5th of May. This makes the dividend yield 9.9%, which will augment investor returns quite nicely.

See our latest analysis for Selvaag Bolig

Selvaag Bolig 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. At the time of the last dividend payment, Selvaag Bolig was paying out a very large proportion of what it was earning and 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%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 167%, which could put the dividend under pressure if earnings don't start to improve.

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. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The first annual payment during the last 8 years was kr0.50 in 2014, and the most recent fiscal year payment was kr5.00. This means that it has been growing its distributions at 33% per annum over that time. Selvaag Bolig has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Selvaag Bolig's Dividend Might Lack Growth

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. It's encouraging to see Selvaag Bolig has been growing its earnings per share at 11% a year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

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. 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. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Selvaag Bolig (of which 3 are a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.