Rockwool's (CPH:ROCK B) Dividend Will Be Increased To €43.00

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 2.0%, which is fairly typical for the industry.

Check out our latest analysis for Rockwool

Rockwool Doesn't Earn Enough To Cover Its Payments

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, Rockwool's earnings easily cover the dividend. 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 9.9% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was €1.37 in 2014, and the most recent fiscal year payment was €5.80. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Rockwool has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Rockwool Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Rockwool has grown earnings per share at 8.3% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like Rockwool's Dividend

Overall, a dividend increase is always good, and we think that Rockwool is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 1 warning sign for Rockwool that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.