Concentric's (STO:COIC) Dividend Will Be Increased To SEK4.25

The board of Concentric AB (publ) (STO:COIC) has announced that it will be paying its dividend of SEK4.25 on the 25th of April, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 2.4% is only a modest boost to shareholder returns.

Check out our latest analysis for Concentric

Concentric's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Concentric 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.

Looking forward, earnings per share is forecast to rise by 26.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was SEK1.25, compared to the most recent full-year payment of SEK4.25. This works out to be a compound annual growth rate (CAGR) of approximately 13% 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.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, Concentric's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While growth may be thin on the ground, Concentric could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. 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.

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. Taking the debate a bit further, we've identified 1 warning sign for Concentric that investors need to be conscious of moving forward. Is Concentric not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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