Webstep (OB:WSTEP) Is Paying Out A Larger Dividend Than Last Year

The board of Webstep ASA (OB:WSTEP) has announced that it will be increasing its dividend on the 9th of May to kr1.70. This will take the dividend yield from 5.5% to 5.5%, providing a nice boost to shareholder returns.

Check out our latest analysis for Webstep

Webstep's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. At the time of the last dividend payment, Webstep was paying out a very large proportion of what it was earning and 99% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to expand by 26.0%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 53% which would be quite comfortable going to take the dividend forward.

Webstep Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2018, the dividend has gone from kr1.50 to kr1.70. This means that it has been growing its distributions at 3.2% per annum over that time. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Webstep has seen earnings per share falling at 2.6% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. 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.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Webstep will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Webstep is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Webstep (1 is a bit unpleasant!) that you should be aware of before investing. Is Webstep not quite the opportunity you were looking for? Why not check out our selection of top 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.