Readers hoping to buy Selvaag Bolig ASA (OB:SBO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 19th of August in order to receive the dividend, which the company will pay on the 30th of August.
Selvaag Bolig's next dividend payment will be kr2.00 per share, on the back of last year when the company paid a total of kr5.00 to shareholders. Last year's total dividend payments show that Selvaag Bolig has a trailing yield of 8.9% on the current share price of NOK50.4. If you buy this business for its dividend, you should have an idea of whether Selvaag Bolig's dividend is reliable and sustainable. So we need to investigate whether Selvaag Bolig can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 81% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Selvaag Bolig generated enough free cash flow to afford its dividend. The company paid out 93% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
Selvaag Bolig paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Selvaag Bolig's ability to maintain its dividend.
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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Selvaag Bolig's earnings have been skyrocketing, up 26% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 5 years, Selvaag Bolig has lifted its dividend by approximately 55% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Has Selvaag Bolig got what it takes to maintain its dividend payments? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 93% of its cashflow, which is uncomfortably high. Overall, it's hard to get excited about Selvaag Bolig from a dividend perspective.
Curious what other investors think of Selvaag Bolig? See what analysts 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.
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