AB Electrolux's (STO:ELUX B) Dividend Will Be Increased To SEK4.60

The board of AB Electrolux (publ) (STO:ELUX B) has announced that it will be paying its dividend of SEK4.60 on the 5th of October, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 6.4%.

View 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. Prior to this announcement, AB Electrolux's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 44.6%. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.

AB Electrolux Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was SEK6.50 in 2012, and the most recent fiscal year payment was SEK9.20. This means that it has been growing its distributions at 3.5% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

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. Unfortunately things aren't as good as they seem. Although it's important to note that AB Electrolux's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think AB Electrolux is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, AB Electrolux has 4 warning signs (and 2 which don't sit too well with us) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.