K-Bro Linen's (TSE:KBL) Dividend Will Be CA$0.10

K-Bro Linen Inc. (TSE:KBL) will pay a dividend of CA$0.10 on the 15th of December. This means the annual payment is 2.9% of the current stock price, which is above the average for the industry.

Check out our latest analysis for K-Bro Linen

K-Bro Linen's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, K-Bro Linen's profits didn't cover the dividend, but the company was generating enough cash instead. 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.

Looking forward, earnings per share is forecast to rise by 153.0% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 49% which brings it into quite a comfortable range.

K-Bro Linen Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from CA$1.10 in 2011 to the most recent annual payment of CA$1.20. Dividend payments have grown at less than 1% a year over this period. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. K-Bro Linen has seen earnings per share falling at 9.5% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On K-Bro Linen's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about K-Bro Linen's payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Taking the debate a bit further, we've identified 2 warning signs for K-Bro Linen that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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.

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