OMV Petrom (BVB:SNP) Is Increasing Its Dividend To RON0.034

The board of OMV Petrom S.A. (BVB:SNP) has announced that it will be increasing its dividend by 10.0% on the 6th of June to RON0.034. Based on the announced payment, the dividend yield for the company will be 7.1%, which is fairly typical for the industry.

See our latest analysis for OMV Petrom

OMV Petrom's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, OMV Petrom was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 11.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was RON0.018, compared to the most recent full-year payment of RON0.034. This implies that the company grew its distributions at a yearly rate of about 6.8% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. OMV Petrom might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that OMV Petrom has grown earnings per share at 24% per year over the past five years. OMV Petrom is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We Really Like OMV Petrom's Dividend

Overall, a dividend increase is always good, and we think that OMV Petrom is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

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. For example, we've identified 2 warning signs for OMV Petrom (1 is a bit concerning!) 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.