Telenor (OB:TEL) Will Pay A Dividend Of NOK4.50

Telenor ASA (OB:TEL) has announced that it will pay a dividend of NOK4.50 per share on the 29th of October. This makes the dividend yield 7.4%, which is above the industry average.

See our latest analysis for Telenor

Telenor Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 144% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 65%. 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 45.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 101%, which probably can't continue without putting some pressure on the balance sheet.

Telenor Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was NOK7.00 in 2014, and the most recent fiscal year payment was NOK9.50. This implies that the company grew its distributions at a yearly rate of about 3.1% over that duration. 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 Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 3.1% a year for the past five years, which isn't massive but still better than seeing them shrink. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. This gives limited room for the company to raise the dividend in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Telenor's payments are rock solid. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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