Husqvarna's (STO:HUSQ B) Upcoming Dividend Will Be Larger Than Last Year's

By
Simply Wall St
Published
May 12, 2022
OM:HUSQ B
Source: Shutterstock

The board of Husqvarna AB (publ) (STO:HUSQ B) has announced that it will be increasing its dividend on the 14th of October to kr2.00. This takes the dividend yield from 3.3% to 3.3%, which shareholders will be pleased with.

View our latest analysis for Husqvarna

Husqvarna's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Husqvarna's dividend was only 39% of earnings, however it was paying out 530% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to fall by 8.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 45%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

historic-dividend
OM:HUSQ B Historic Dividend May 12th 2022

Husqvarna Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the dividend has gone from kr1.50 to kr3.00. This means that it has been growing its distributions at 7.2% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

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 Husqvarna has been growing its earnings per share at 14% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Husqvarna's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Husqvarna is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Husqvarna 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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