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. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

Check out our latest analysis for Epiroc

Epiroc's Payment Has Solid Earnings Coverage

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. The business is earning enough to make the dividend feasible, but the cash payout ratio of 90% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 20.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

Epiroc Is Still Building Its Track Record

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 works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Epiroc has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Epiroc has impressed us by growing EPS at 16% per 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.

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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 20 analysts we track are forecasting for Epiroc for free with public analyst estimates for the company. Is Epiroc not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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