Telenor (OB:TEL) Has Announced That It Will Be Increasing Its Dividend To NOK4.40

Telenor ASA (OB:TEL) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of October to NOK4.40. This takes the dividend yield to 8.6%, which shareholders will be pleased with.

See our latest analysis for Telenor

Telenor Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the dividend made up 90% of cash flows, but a higher proportion of net income. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Earnings per share is forecast to rise by 68.5% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 126%, which is a bit high and could start applying pressure to the balance sheet.

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 NOK6.00 in 2013, and the most recent fiscal year payment was NOK9.40. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Over the past five years, it looks as though Telenor's EPS has declined at around 13% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Telenor will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Telenor (1 is potentially serious!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.