The board of Lindab International AB (publ) (STO:LIAB) has announced that it will be increasing its dividend on the 10th of November to kr1.70. This will take the annual payment from 1.7% to 1.7% of the stock price, which is above what most companies in the industry pay.
Lindab International's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Lindab International's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Looking forward, earnings per share is forecast to rise by 23.3% over the next year. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from kr1.00 in 2011 to the most recent annual payment of kr3.40. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Lindab International has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Lindab International has impressed us by growing EPS at 14% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
We Really Like Lindab International's Dividend
Overall, a dividend increase is always good, and we think that Lindab International is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Lindab International that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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