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The advice of Orange SA (EPA: ORA) has announced that it will increase its dividend on June 17 to € 0.50. This brings the dividend yield from 6.7% to 8.6%, which shareholders will be delighted with.
See our latest analysis for Orange
Orange payment has strong revenue coverage
Impressive dividend yields are good, but it doesn’t matter much if the payouts can’t be sustained. However, prior to this announcement, Orange’s dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is used to help it grow.
Going forward, earnings per share are expected to drop 43.4% over the next year. Assuming the dividend continues according to recent trends, we think the payout ratio could reach 94% which is definitely on the higher side.
Dividend volatility
The history of the company’s dividends has been marked by instability, with at least one decline in the past 10 years. Since 2011, the dividend has increased from € 1.40 to € 0.70. This represents a decrease of about 6.7% 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 dividend seems likely to increase
Since dividend payments have shrunk like a glacier in a warming world, we need to check if there are any bright spots on the horizon. Orange has seen its BPA increase over the past five years, to 19% per year. The growth in EPS bodes well for the dividend, as does the low payout ratio the company is currently reporting.
We really like the Orange dividend
In summary, it is always positive to see the dividend increase and we are particularly satisfied with its overall sustainability. Profits easily cover the company’s distributions, and the business generates a lot of cash. However, it should be noted that profits are expected to decline over the next year or so, which may not change the long-term outlook, but may affect the dividend payout over the next 12 months. Overall, this ticks a lot of the boxes that we look for when choosing an income stock.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. Concrete example: we have spotted 3 warning signs for Orange (of which 1 is of concern!) that you should know about. Looking for more high yield dividend ideas? Try our organized list of big dividend payers.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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