Atlas Copco (STO:ATCO A) Is Due To Pay A Dividend Of SEK1.40

Atlas Copco AB's (STO:ATCO A) investors are due to receive a payment of SEK1.40 per share on 24th of October. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.

See our latest analysis for Atlas Copco

Atlas Copco's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Atlas Copco was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 25.9% over the next year. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

Atlas Copco Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of SEK1.38 in 2014 to the most recent total annual payment of SEK2.80. This implies that the company grew its distributions at a yearly rate of about 7.4% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Atlas Copco has been growing its earnings per share at 12% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

We Really Like Atlas Copco's Dividend

Overall, a dividend increase is always good, and we think that Atlas Copco is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 19 Atlas Copco analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Atlas Copco not quite the opportunity you were looking for? Why not check out our selection of top 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.