Eimskipafélag Íslands hf (ICE:EIM) Will Pay A Larger Dividend Than Last Year At €11.47

The board of Eimskipafélag Íslands hf. (ICE:EIM) has announced that it will be paying its dividend of €11.47 on the 26th of April, an increased payment from last year's comparable dividend. This takes the annual payment to 3.5% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Eimskipafélag Íslands hf

Eimskipafélag Íslands hf Doesn't Earn Enough To Cover Its Payments

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Eimskipafélag Íslands hf was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Earnings per share could rise by 40.9% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 4,864%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was €0.0131, compared to the most recent full-year payment of €0.133. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. Eimskipafélag Íslands hf 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Eimskipafélag Íslands hf has been growing its earnings per share at 41% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Eimskipafélag Íslands hf's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 1 warning sign for Eimskipafélag Íslands hf 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.