Husqvarna (STO:HUSQ B) Will Pay A Larger Dividend Than Last Year At SEK2.00

The board of Husqvarna AB (publ) (STO:HUSQ B) has announced that it will be paying its dividend of SEK2.00 on the 14th of October, an increased payment from last year's comparable dividend. This will take the annual payment to 4.8% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Husqvarna

Husqvarna's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Husqvarna's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 15.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, which is in the range that makes us comfortable with the sustainability of the dividend.

Husqvarna Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the annual payment back then was SEK1.50, compared to the most recent full-year payment of SEK3.00. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

We Could See Husqvarna's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. Husqvarna has impressed us by growing EPS at 9.3% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Husqvarna (1 is concerning!) that you should be aware of before investing. Is Husqvarna not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.