Telenor (OB:TEL) Has Announced A Dividend Of NOK4.50

Telenor ASA (OB:TEL) will pay a dividend of NOK4.50 on the 29th of October. This makes the dividend yield 7.7%, which is above the industry average.

See our latest analysis for Telenor

Telenor Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Telenor's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Earnings per share is forecast to rise by 70.4% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 107%, which is a bit high and could start applying pressure to the balance sheet.

Telenor Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was NOK7.00, compared to the most recent full-year payment of NOK9.50. This works out to be a compound annual growth rate (CAGR) of approximately 3.1% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Telenor May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Telenor hasn't seen much change in its earnings per share over the last five years. The earnings growth is anaemic, and the company is paying out 177% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

Our Thoughts On Telenor's Dividend

Overall, we always like to see the dividend being raised, but we don't think Telenor will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Telenor that investors should take into consideration. Is Telenor 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.

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