Bouvet (OB:BOUV) Is Increasing Its Dividend To NOK2.50

The board of Bouvet ASA (OB:BOUV) has announced that it will be paying its dividend of NOK2.50 on the 8th of June, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 4.0%, which is in line with the average for the industry.

Check out our latest analysis for Bouvet

Bouvet Is Paying Out More Than It Is Earning

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Bouvet was paying out 82% of earnings and more than 75% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Earnings per share is forecast to rise by 18.9% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 102%, which is a bit high and could start applying pressure to the balance sheet.

Bouvet Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was NOK0.50, compared to the most recent full-year payment of NOK2.50. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Bouvet's Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. Bouvet has seen EPS rising for the last five years, at 23% per annum. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Bouvet hasn't been doing.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Bouvet that investors should know about before committing capital to this stock. 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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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.