Atea (OB:ATEA) Has Announced A Dividend Of NOK3.50

The board of Atea ASA (OB:ATEA) has announced that it will pay a dividend of NOK3.50 per share on the 26th of November. This will take the dividend yield to an attractive 5.1%, providing a nice boost to shareholder returns.

Check out our latest analysis for Atea

Atea's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 101% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 70%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, earnings per share is forecast to rise by 78.2% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 57% which would be quite comfortable going to take the dividend forward.

Atea Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of NOK6.00 in 2014 to the most recent total annual payment of NOK7.00. This means that it has been growing its distributions at 1.6% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Atea May Have Challenges Growing The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Atea has seen EPS rising for the last five years, at 7.9% per annum. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. 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. Taking the debate a bit further, we've identified 1 warning sign for Atea that investors need to be conscious of moving forward. Is Atea not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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