Telia Company (STO:TELIA) Has Announced A Dividend Of SEK0.50

The board of Telia Company AB (publ) (STO:TELIA) has announced that it will pay a dividend on the 11th of February, with investors receiving SEK0.50 per share. This payment means that the dividend yield will be 5.4%, which is around the industry average.

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Telia Company's Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Telia Company's dividend was higher than its profits, but the free cash flows quite comfortably covered it. 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.

EPS is set to grow by 68.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.

View our latest analysis for Telia Company

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of SEK3.00 in 2015 to the most recent total annual payment of SEK2.00. This works out to be a decline of approximately 4.0% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Telia Company Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Telia Company has been growing its earnings per share at 13% a 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.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Telia Company that investors should take into consideration. 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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