H. Lundbeck (CPH:HLUN B) Will Pay A Larger Dividend Than Last Year At DKK0.70

H. Lundbeck A/S (CPH:HLUN B) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of March to DKK0.70. This makes the dividend yield about the same as the industry average at 2.2%.

Check out our latest analysis for H. Lundbeck

H. Lundbeck's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, H. Lundbeck was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 67.0% over the next year. If the dividend continues on this path, the payout ratio could be 18% by next year, which we think can be pretty sustainable going forward.

H. Lundbeck Is Still Building Its Track Record

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. H. Lundbeck's earnings per share has shrunk at 10% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

In Summary

Overall, we always like to see the dividend being raised, but we don't think H. Lundbeck will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. As an example, we've identified 1 warning sign for H. Lundbeck that you should be aware of before investing. 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.