Webstep's (OB:WSTEP) Dividend Will Be Increased To NOK2.30

Webstep ASA (OB:WSTEP) will increase its dividend from last year's comparable payment on the 1st of January to NOK2.30. This makes the dividend yield 9.6%, which is above the industry average.

Check out our latest analysis for Webstep

Webstep's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 128% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Over the next year, EPS is forecast to expand by 54.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 71% which would be quite comfortable going to take the dividend forward.

Webstep's Dividend Has Lacked Consistency

It's comforting to see that Webstep has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 7 years was NOK1.50 in 2018, and the most recent fiscal year payment was NOK2.30. This implies that the company grew its distributions at a yearly rate of about 6.3% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Webstep has impressed us by growing EPS at 5.9% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

Webstep's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Webstep's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

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 2 warning signs for Webstep (1 can't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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