Telia Company AB (publ) (STO: TELIA) has announced that it will increase its dividend on November 2 to 1.00 kr. This brings the dividend yield from 5.5% to 7.3%, which shareholders will be delighted with.
Check out our latest review for Telia Company
Telia may struggle to continue dividend
While it’s great to have a strong dividend yield, we also need to determine if the payout is sustainable. Even though Telia Company does not generate a profit, it generates healthy free cash flow that easily covers the dividend. This reassures us about the level of dividend payments.
Recently, EPS fell 46.8%, which could continue next year. 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.
The history of the company’s dividends has been marked by instability, with at least one decline in the past 10 years. The dividend went from 2.75 kr in 2011 to the last annual payment of 2.00 kr. This represents a decrease of about 3.1% per year during this period. In general, we don’t like to see a dividend that decreases over time as this can degrade shareholder returns and indicate that the company may be in trouble.
The potential for dividend growth is fragile
Growth in earnings per share could be a mitigating factor considering past dividend fluctuations. Telia Company’s earnings per share have declined by 47% per year over the past five years. Such rapid declines certainly have the potential to constrain dividend payments if the trend continues in the future.
The dividend could prove to be unreliable
In summary, while it’s always good to see the dividend increase, we don’t think Telia Company’s payouts are strong. Payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flow, it could prove to be reliable in the short term. This company is not in the top bracket of income providing stocks.
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. As an example, we have met 4 warning signs for Telia you should be aware of this, and 2 of them should not be ignored. We have also set up a list of global stocks with a solid dividend.
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