Rockwool (CPH:ROCK B) Is Paying Out A Larger Dividend Than Last Year

Rockwool A/S (CPH:ROCK B) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of April to €43.00. Based on this payment, the dividend yield for the company will be 2.1%, which is fairly typical for the industry.

See our latest analysis for Rockwool

Rockwool Doesn't Earn Enough To Cover Its Payments

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Rockwool's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Earnings per share is forecast to rise by 10.7% over the next year. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was €1.37 in 2014, and the most recent fiscal year payment was €5.80. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Rockwool has seen EPS rising for the last five years, at 8.2% per annum. Rockwool definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Rockwool's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Rockwool that investors need to be conscious of moving forward. Is Rockwool not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.