Mips' (STO:MIPS) Shareholders Will Receive A Bigger Dividend Than Last Year

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. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

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Mips' Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, the company was paying out 122% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 46% which is fairly sustainable.

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Mips Is Still Building Its Track Record

It is great to see that Mips has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2019, the dividend has gone from SEK2.50 total annually to SEK6.50. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Mips May Have Challenges Growing The Dividend

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Mips has been growing its earnings per share at 9.6% a year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

Mips' Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Earnings growth generally bodes well for the future value of company dividend payments. See if the 4 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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