Telenor ASA (OB:TEL) will increase its dividend on the 19th of October to kr4.30. This will take the dividend yield from 7.4% to 7.4%, providing a nice boost to shareholder returns.
Telenor Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Telenor's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Earnings per share is forecast to rise by 2.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 106%, which probably can't continue putting some pressure on the balance sheet.
Telenor Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from kr5.00 in 2012 to the most recent annual payment of kr9.30. This means that it has been growing its distributions at 6.4% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Telenor's Dividend Might Lack Growth
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Telenor has been growing its earnings per share at 15% a year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.
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 probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Telenor that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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.