Stock Analysis

K-Bro Linen (TSE:KBL) Has Affirmed Its Dividend Of CA$0.10

TSX:KBL
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K-Bro Linen Inc. (TSE:KBL) will pay a dividend of CA$0.10 on the 15th of September. This makes the dividend yield 3.6%, which will augment investor returns quite nicely.

View our latest analysis for K-Bro Linen

K-Bro Linen Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 265% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 65%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to expand by 69.6%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 144% over the next year.

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TSX:KBL Historic Dividend August 13th 2022

K-Bro Linen Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was CA$1.1, compared to the most recent full-year payment of CA$1.20. Its dividends have grown at less than 1% per annum over this time frame. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. K-Bro Linen's earnings per share has shrunk at 17% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Our Thoughts On K-Bro Linen's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for K-Bro Linen that investors should take into consideration. Is K-Bro Linen not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.