Instalco (STO:INSTAL) Has Announced That It Will Be Increasing Its Dividend To SEK0.68

Instalco AB (publ)'s (STO:INSTAL) dividend will be increasing from last year's payment of the same period to SEK0.68 on 14th of May. Even though the dividend went up, the yield is still quite low at only 1.8%.

See our latest analysis for Instalco

Instalco's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Instalco was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 51.1%. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

Instalco Is Still Building Its Track Record

Instalco's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2018, the dividend has gone from SEK0.22 total annually to SEK0.68. This means that it has been growing its distributions at 21% per annum over that time. Instalco has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Instalco has grown earnings per share at 17% per year over the past five years. Instalco definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Instalco's Dividend

Overall, a dividend increase is always good, and we think that Instalco is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 picked out 2 warning signs for Instalco that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.