Selvaag Bolig's (OB:SBO) Dividend Will Be kr3.00

Selvaag Bolig ASA's (OB:SBO) investors are due to receive a payment of kr3.00 per share on 5th of May. Based on this payment, the dividend yield on the company's stock will be 9.9%, which is an attractive boost to shareholder returns.

View our latest analysis for Selvaag Bolig

Selvaag Bolig Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Selvaag Bolig's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 119% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, earnings per share is forecast to fall by 33.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 168%, which could put the dividend in jeopardy if the company's earnings don't improve.

Selvaag Bolig's Dividend Has Lacked Consistency

Looking back, Selvaag Bolig's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. 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 implies that the company grew its distributions at a yearly rate of about 33% over that duration. 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.

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. Selvaag Bolig has impressed us by growing EPS at 11% per 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. Strong earnings growth means Selvaag Bolig has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Selvaag Bolig (of which 3 are potentially serious!) you should know about. Is Selvaag Bolig not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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