Itera (OB:ITERA) Will Pay A Smaller Dividend Than Last Year

Itera ASA (OB:ITERA) has announced that on 6th of December, it will be paying a dividend ofNOK0.20, which a reduction from last year's comparable dividend. However, the dividend yield of 4.2% still remains in a typical range for the industry.

See our latest analysis for Itera

Itera's Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before this announcement, Itera was paying out 79% of earnings, but a comparatively small 46% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 135.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of NOK0.35 in 2014 to the most recent total annual payment of NOK0.40. This means that it has been growing its distributions at 1.3% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Itera's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

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. For example, we've picked out 3 warning signs for Itera that investors should know about before committing capital to this stock. Is Itera not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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