Telia Company AB (publ) (STO:TELIA) has announced that it will be increasing its dividend on the 2nd of November to kr1.00. This takes the dividend yield from 5.5% to 7.3%, which shareholders will be pleased with.
Telia Company Might Find It Hard To Continue The Dividend
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Even though Telia Company isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.
Recent, EPS has fallen by 46.8%, so this could continue over the next year. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from kr2.75 in 2011 to the most recent annual payment of kr2.00. This works out to be a decline of approximately 3.1% 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.
Dividend Growth Potential Is Shaky
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Telia Company's earnings per share has shrunk at 47% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think Telia Company's payments are rock solid. 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. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Telia Company you should be aware of, and 2 of them shouldn't be ignored. We have also put together a list of global stocks with a solid dividend.
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