Instalco's (STO:INSTAL) Shareholders Will Receive A Bigger Dividend Than Last Year

Instalco AB (publ) (STO:INSTAL) has announced that it will be increasing its dividend from last year's comparable payment on the 14th of May to SEK0.68. Even though the dividend went up, the yield is still quite low at only 1.6%.

Check out our latest analysis for Instalco

Instalco's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. 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 55.8%. 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 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 SEK0.68. This means that it has been growing its distributions at 21% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Instalco has seen EPS rising for the last five years, at 17% per annum. Instalco definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

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. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Instalco that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.