Loomis AB (publ) (STO:LOOMIS) will increase its dividend on the 11th of May to kr8.50. This takes the annual payment to 3.4% of the current stock price, which is about average for the industry.
Loomis' Dividend Is Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite easily covered by Loomis' earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
The next year is set to see EPS grow by 54.6%. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.
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 first annual payment during the last 10 years was kr3.50 in 2012, and the most recent fiscal year payment was kr8.50. This implies that the company grew its distributions at a yearly rate of about 9.3% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
Loomis May Find It Hard To Grow The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's not great to see that Loomis' earnings per share has fallen at approximately 2.2% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
In summary, while it's always good to see the dividend being raised, we don't think Loomis' 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.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Loomis that investors should know about before committing capital to this stock. Is Loomis not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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.