Nobia's (STO:NOBI) Upcoming Dividend Will Be Larger Than Last Year's

The board of Nobia AB (publ) (STO:NOBI) has announced that it will be increasing its dividend on the 12th of May to kr2.50. The announced payment will take the dividend yield to 6.4%, which is in line with the average for the industry.

View our latest analysis for Nobia

Nobia's Earnings Easily Cover the Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last dividend was quite easily covered by Nobia's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 34.7%. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.

Nobia's Dividend Has Lacked Consistency

Looking back, Nobia's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The first annual payment during the last 9 years was kr0.50 in 2013, and the most recent fiscal year payment was kr2.50. This means that it has been growing its distributions at 20% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Come By

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Nobia's EPS has declined at around 6.3% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Nobia is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Nobia that investors should know about before committing capital to this stock. 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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