BTS Group's (STO:BTS B) Upcoming Dividend Will Be Larger Than Last Year's

BTS Group AB (publ) (STO:BTS B) has announced that it will be increasing its dividend from last year's comparable payment on the 20th of November to SEK2.70. Despite this raise, the dividend yield of 2.2% is only a modest boost to shareholder returns.

Check out 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. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 65.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was SEK1.75 in 2013, and the most recent fiscal year payment was SEK5.40. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

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. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On BTS Group's Dividend

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 BTS Group is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 BTS Group that investors need to be conscious of moving forward. Is BTS Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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