Stock Analysis

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

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K-Bro Linen Inc. (TSE:KBL) will pay a dividend of CA$0.10 on the 15th of March. This makes the dividend yield 3.5%, which will augment investor returns quite nicely.

Check out our latest analysis for K-Bro Linen

K-Bro Linen's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment made up 94% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 147.1%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 38% which would be quite comfortable going to take the dividend forward.

TSX:KBL Historic Dividend February 19th 2024

K-Bro Linen Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was CA$1.15 in 2014, and the most recent fiscal year payment was CA$1.20. Dividend payments have grown at less than 1% a year over this period. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

K-Bro Linen's Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that K-Bro Linen has been growing its earnings per share at 28% a year over the past five years. However, K-Bro Linen isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

In Summary

Overall, a consistent dividend is a good thing, and we think that K-Bro Linen has the ability to continue this into the future. The payments look pretty sustainable with good earnings coverage and a reasonable track record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for K-Bro Linen that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether K-Bro Linen is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.