Coor Service Management Holding's (STO:COOR) Upcoming Dividend Will Be Larger Than Last Year's

Coor Service Management Holding AB's (STO:COOR) dividend will be increasing to kr2.40 on 6th of May. This will take the annual payment from 5.6% to 5.6% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Coor Service Management Holding

Coor Service Management Holding Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Coor Service Management Holding's dividend made up quite a large proportion of earnings but only 68% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 23.1%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 150% over the next year.

Coor Service Management Holding's Dividend Has Lacked Consistency

It's comforting to see that Coor Service Management Holding has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the dividend has gone from kr1.40 to kr4.80. This implies that the company grew its distributions at a yearly rate of about 23% 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.

Coor Service Management Holding's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Coor Service Management Holding has impressed us by growing EPS at 17% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On Coor Service Management Holding's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Coor Service Management Holding's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 2 warning signs for Coor Service Management Holding that you should be aware of before investing. 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.