Itera's (OB:ITERA) Dividend Will Be NOK0.20

Itera ASA's (OB:ITERA) investors are due to receive a payment of NOK0.20 per share on 10th of June. However, the dividend yield of 4.7% still remains in a typical range for the industry.

Our free stock report includes 3 warning signs investors should be aware of before investing in Itera. Read for free now.

Itera's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Itera's dividend made up quite a large proportion of earnings but only 52% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 157.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

View our latest analysis for Itera

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was NOK0.35, compared to the most recent full-year payment of NOK0.40. This implies that the company grew its distributions at a yearly rate of about 1.3% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Itera has seen earnings per share falling at 3.5% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

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. For instance, we've picked out 3 warning signs for Itera that investors should take into consideration. Is Itera not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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