Orkla ASA (OB:ORK) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 17th of April in order to receive the dividend, which the company will pay on the 27th of April.
Orkla’s next dividend payment will be kr2.60 per share, and in the last 12 months, the company paid a total of kr2.60 per share. Calculating the last year’s worth of payments shows that Orkla has a trailing yield of 2.9% on the current share price of NOK89.58. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it’s growing.
Check out our latest analysis for Orkla
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Orkla paid out more than half (68%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Orkla’s earnings per share have been growing at 13% a year for the past five years. Orkla is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the past ten years, Orkla has increased its dividend at approximately 1.5% a year on average. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Should investors buy Orkla for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we’d also note that Orkla is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, it’s hard to get excited about Orkla from a dividend perspective.
Wondering what the future holds for Orkla? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at [email protected] This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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