Instalco (STO:INSTAL) Is Increasing Its Dividend To SEK0.66

Instalco AB (publ) (STO:INSTAL) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of May to SEK0.66. Despite this raise, the dividend yield of 1.3% is only a modest boost to shareholder returns.

Check out 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. However, prior to this announcement, Instalco's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 60.9%. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.

Instalco Doesn't Have A Long Payment History

It is great to see that Instalco has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2018, the annual payment back then was SEK0.22, compared to the most recent full-year payment of SEK0.66. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. 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

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Instalco has impressed us by growing EPS at 22% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Instalco Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. As an example, we've identified 1 warning sign for Instalco that you should be aware of before investing. 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.