K-Bro Linen (TSE:KBL) Has Announced A Dividend Of CA$0.10

The board of K-Bro Linen Inc. (TSE:KBL) has announced that it will pay a dividend of CA$0.10 per share on the 15th of August. The dividend yield will be 3.5% based on this payment which is still above the industry average.

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K-Bro Linen's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, K-Bro Linen was paying out 71% of earnings, but a comparatively small 45% of free cash flows. 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.

The next year is set to see EPS grow by 63.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 54% by next year, which is in a pretty sustainable range.

Check out our latest analysis for K-Bro Linen

K-Bro Linen Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The last annual payment of CA$1.20 was flat on the annual payment from10 years ago. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. K-Bro Linen has seen EPS rising for the last five years, at 16% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

We should note that K-Bro Linen has issued stock equal to 24% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

K-Bro Linen Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for K-Bro Linen (1 is significant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.