Stock Analysis

Telenor (OB:TEL) Is Paying Out A Larger Dividend Than Last Year

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Telenor ASA's (OB:TEL) dividend will be increasing from last year's payment of the same period to NOK4.30 on 19th of October. This will take the dividend yield to an attractive 9.2%, providing a nice boost to shareholder returns.

Check out our latest analysis for Telenor

Telenor Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Telenor's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share is forecast to rise by 24.1% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 108% over the next year.

OB:TEL Historic Dividend October 4th 2022

Telenor Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from NOK5.00 total annually to NOK9.30. This means that it has been growing its distributions at 6.4% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Telenor's Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Telenor has grown earnings per share at 19% per 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 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 3 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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