engcon (STO:ENGCON B) Will Pay A Dividend Of SEK0.47

The board of engcon AB (publ) (STO:ENGCON B) has announced that it will pay a dividend of SEK0.47 per share on the 4th of October. Even though the dividend went up, the yield is still quite low at only 1.1%.

View our latest analysis for engcon

engcon'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. Before this announcement, engcon was paying out 78% of earnings, but a comparatively small 37% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 156.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

engcon Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

engcon May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, engcon has only grown its earnings per share at 4.8% per annum over the past five years. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for engcon that investors should take into consideration. 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.

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