Husqvarna's (STO:HUSQ B) Shareholders Will Receive A Bigger Dividend Than Last Year

Husqvarna AB (publ) (STO:HUSQ B) has announced that it will be increasing its dividend from last year's comparable payment on the 14th of October to SEK2.00. This will take the annual payment to 4.3% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Husqvarna

Husqvarna's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Husqvarna's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 17.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 41% by next year, which is in a pretty sustainable range.

Husqvarna Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was SEK1.50 in 2012, and the most recent fiscal year payment was SEK3.00. This means that it has been growing its distributions at 7.2% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Husqvarna Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Husqvarna has seen EPS rising for the last five years, at 9.3% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Husqvarna's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Husqvarna's payments are rock solid. While Husqvarna is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 doesn't sit too well with us!) 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.