Epiroc's (STO:EPI A) Shareholders Will Receive A Bigger Dividend Than Last Year

Epiroc AB (publ) (STO:EPI A) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of October to SEK1.70. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

Check out our latest analysis for Epiroc

Epiroc's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Epiroc was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. 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 21.5%. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.

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. The annual payment during the last 4 years was SEK2.10 in 2019, and the most recent fiscal year payment was SEK3.40. This means that it has been growing its distributions at 13% per annum 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

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Epiroc has grown earnings per share 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. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Epiroc has been making. 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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 19 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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