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

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 1.7%, which is below the industry average.

See our latest analysis for Epiroc

Epiroc's Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Epiroc was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. 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 20.6%. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

Epiroc Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2019, the dividend has gone from SEK2.10 total annually to SEK3.40. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year 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 16% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

In Summary

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 don't think Epiroc is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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