Coloplast's (CPH:COLO B) Upcoming Dividend Will Be Larger Than Last Year's

Coloplast A/S (CPH:COLO B) has announced that it will be increasing its dividend from last year's comparable payment on the 10th of December to DKK17.00. This takes the dividend yield to 2.5%, which shareholders will be pleased with.

View our latest analysis for Coloplast

Coloplast's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Looking forward, earnings per share is forecast to rise by 49.9% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 73% which brings it into quite a comfortable range.

Coloplast Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the dividend has gone from DKK11.00 total annually to DKK22.00. This means that it has been growing its distributions at 7.2% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, Coloplast has only grown its earnings per share at 4.2% per annum over the past five years. The earnings growth is anaemic, and the company is paying out 98% of its profit. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

Coloplast's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Coloplast will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Coloplast is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Coloplast that investors need to be conscious of moving forward. Is Coloplast not quite the opportunity you were looking for? Why not check out our selection of top 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.