BTS Group (STO:BTS B) Has Announced That It Will Be Increasing Its Dividend To SEK2.70

BTS Group AB (publ) (STO:BTS B) will increase its dividend from last year's comparable payment on the 20th of November to SEK2.70. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for BTS Group

BTS Group's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, BTS Group's dividend was only 56% of earnings, however it was paying out 104% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 65.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 38% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was SEK1.75, compared to the most recent full-year payment of SEK5.40. This means that it has been growing its distributions at 12% per annum over that time. BTS Group 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. BTS Group has impressed us by growing EPS at 10% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think BTS Group's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good 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. For instance, we've picked out 1 warning sign for BTS Group that investors should take into consideration. 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.