Telia Company AB (publ) (STO: TELIA) will increase its dividend on November 2 to 1.00 kr. This will bring the dividend yield from 5.4% to 7.1%, which will give shareholders returns a big boost.
Check out our latest review for Telia Company
Telia may struggle to continue dividend
A high dividend yield for a few years doesn’t mean much if it can’t be sustained. Even though Telia Company does not generate a profit, it generates healthy free cash flow that easily covers the dividend. We generally think cash flow is more important than accounting measures of profit, so we’re pretty comfortable with the dividend at this level.
Looking ahead, earnings per share could reach 46.8% next year if the trend of recent years cannot be broken. This means that the company will not be profitable, but the cash flow is more important when you consider the dividend and since the current cash payout ratio is quite healthy, we don’t think there are too many reasons. to worry.
Although the company has a long history of dividends, it has been cut at least once in the past 10 years. The first annual payment in the last 10 years was 2.75 kr in 2011, and the payment for the most recent year was 2.00 kr. When you do the math, that’s a drop of about 3.1% per year. A business that decreases its dividend over time is usually not what we are looking for.
The potential for dividend growth is fragile
With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate a growing dividend in the future. Over the past five years, it appears that Telia Company’s EPS has declined by around 47% per year. A sharp drop in earnings per share isn’t terrible from a dividend standpoint. Even conservative payout ratios can be put under pressure if earnings fall enough.
Telia Company dividend does not appear sustainable
Overall, we still like to see the dividend go up, but we don’t think Telia Company will make a good stock of income. In the past, payments have been volatile, but in the short term the dividend could be reliable as the company generates enough cash to cover it. We don’t think Telia Company is a great stock to add to your portfolio if income is your goal.
Companies with a stable dividend policy are likely to benefit from greater investor interest than those with a more inconsistent approach. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. To this end, Telia Company has 4 warning signs (and 2 that are significant) we think you should be aware of. We have also set up a list of global stocks with a solid dividend.
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