Eik fasteignafélag hf (ICE:EIK) Is Increasing Its Dividend To ISK0.74

The board of Eik fasteignafélag hf. (ICE:EIK) has announced that it will be increasing its dividend by 25% on the 30th of April to ISK0.74, up from last year's comparable payment of ISK0.59. This will take the dividend yield to an attractive 5.5%, providing a nice boost to shareholder returns.

Check out our latest analysis for Eik fasteignafélag hf

Eik fasteignafélag hf's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, Eik fasteignafélag hf's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 18.7% if recent trends continue. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.

Eik fasteignafélag hf's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of ISK0.17 in 2015 to the most recent total annual payment of ISK0.59. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Eik fasteignafélag hf has grown earnings per share at 19% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Eik fasteignafélag hf'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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Eik fasteignafélag hf has 5 warning signs (and 1 which can't be ignored) we think you should know about. Is Eik fasteignafélag hf not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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