Epiroc's (STO:EPI A) Upcoming Dividend Will Be Larger Than Last Year's

The board of Epiroc AB (publ) (STO:EPI A) has announced that it will be paying its dividend of SEK1.70 on the 27th of October, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.7%, which is below the industry average.

See our latest analysis for Epiroc

Epiroc's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. The last dividend was quite comfortably covered by Epiroc's earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

The next year is set to see EPS grow by 28.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 41%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 dividend has gone from SEK2.10 total annually to SEK3.40. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. 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. It's encouraging to see that Epiroc has been growing its earnings per share at 15% a 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

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Epiroc has been making. 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. 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. 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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