The board of AB Electrolux (publ) (STO:ELUX B) has announced that it will be increasing its dividend on the 5th of October to kr4.60. Based on the announced payment, the dividend yield for the company will be 6.6%, which is fairly typical for the industry.
See our latest analysis for AB Electrolux
AB Electrolux's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, AB Electrolux was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Looking forward, earnings per share is forecast to rise by 17.2% over the next year. If the dividend continues on this path, the payout ratio could be 55% by next year, which we think can be pretty sustainable going forward.
AB Electrolux Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from kr6.50 to kr9.20. This works out to be a compound annual growth rate (CAGR) of approximately 3.5% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
AB Electrolux May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. AB Electrolux hasn't seen much change in its earnings per share over the last five years.
In Summary
Overall, we always like to see the dividend being raised, but we don't think AB Electrolux will make a great income stock. While AB Electrolux is earning enough to cover the payments, the cash flows are lacking. We don't think AB Electrolux is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, AB Electrolux has 4 warning signs (and 2 which make us uncomfortable) we think you should know about. 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.
About OM:ELUX B
Undervalued with high growth potential.
