Dometic Group (STO:DOM) Is Increasing Its Dividend To kr2.45

The board of Dometic Group AB (publ) (STO:DOM) has announced that it will be increasing its dividend on the 22nd of April to kr2.45. This will take the annual payment from 2.5% to 2.5% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Dometic Group

Dometic Group's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, Dometic Group is earning enough to cover the payment, but the it makes up 106% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next year is set to see EPS grow by 23.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dometic Group Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2017, the first annual payment was kr1.85, compared to the most recent full-year payment of kr2.45. This works out to be a compound annual growth rate (CAGR) of approximately 5.8% a year over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Dometic Group to be a consistent dividend paying stock.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Dometic Group has only grown its earnings per share at 3.2% per annum over the past five years. Growth of 3.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Dometic Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Dometic Group's payments are rock solid. While Dometic Group is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

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. Case in point: We've spotted 4 warning signs for Dometic Group (of which 1 makes us a bit uncomfortable!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.