Absolent Air Care Group's (STO:ABSO) Dividend Will Be Increased To SEK3.00

Absolent Air Care Group AB (publ) (STO:ABSO) will increase its dividend from last year's comparable payment on the 23rd of May to SEK3.00. Even though the dividend went up, the yield is still quite low at only 0.9%.

Check out our latest analysis for Absolent Air Care Group

Absolent Air Care Group's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. However, Absolent Air Care Group's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 55.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 18% by next year, which is in a pretty sustainable range.

Absolent Air Care Group's Dividend Has Lacked Consistency

Looking back, Absolent Air Care Group's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the dividend has gone from SEK0.60 total annually to SEK3.00. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Absolent Air Care Group has grown earnings per share at 7.6% 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.

Our Thoughts On Absolent Air Care Group's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. See if management have their own wealth at stake, by checking insider shareholdings in Absolent Air Care Group stock. 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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