Epiroc (STO:EPI A) Has Announced That It Will Be Increasing Its Dividend To SEK1.70

Epiroc AB (publ) (STO:EPI A) will increase its dividend from last year's comparable payment on the 27th of October to SEK1.70. Although the dividend is now higher, the yield is only 1.8%, which is below the industry average.

View our latest analysis for Epiroc

Epiroc'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. The last dividend was quite comfortably covered by Epiroc's earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to expand by 24.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 42% by next year, which is in a pretty sustainable range.

Epiroc Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2019, the annual payment back then was SEK2.10, compared to the most recent full-year payment of SEK3.40. This means that it has been growing its distributions at 13% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Epiroc has impressed us by growing EPS at 15% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Our Thoughts On Epiroc's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Epiroc's payments are rock solid. While Epiroc is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For instance, we've picked out 1 warning sign for Epiroc 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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