Mips' (STO:MIPS) Dividend Will Be Increased To SEK6.50

The board of Mips AB (publ) (STO:MIPS) has announced that it will be paying its dividend of SEK6.50 on the 14th of May, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.

See our latest analysis for Mips

Mips' Payment Could Potentially Have 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. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

According to analysts, EPS should be several times higher next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 42% which is fairly sustainable.

Mips Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of SEK2.50 in 2019 to the most recent total annual payment of SEK6.50. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Mips has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Mips May Have Challenges Growing The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Mips has seen EPS rising for the last five years, at 9.6% per annum. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Mips' payments are rock solid. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 Mips analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Mips not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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