Telenor (OB:TEL) Has Affirmed Its Dividend Of NOK5.00

Telenor ASA (OB:TEL) will pay a dividend of NOK5.00 on the 22nd of May. This means the annual payment is 8.0% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Telenor

Telenor Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Even while not generating a profit, Telenor is paying out most of its free cash flows as a dividend. Generally it is unsustainable for a company to be paying a dividend while unprofitable, and with limited reinvestment into the business growth may be slow.

Earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 210%, which is unsustainable.

Telenor Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was NOK7.00 in 2014, and the most recent fiscal year payment was NOK9.50. This means that it has been growing its distributions at 3.1% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Come By

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Over the past five years, it looks as though Telenor's EPS has declined at around 9.2% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Telenor's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Telenor you should be aware of, and 1 of them makes us a bit uncomfortable. Is Telenor not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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