Mips (STO:MIPS) Will Pay A Larger Dividend Than Last Year At SEK6.00

Mips AB (publ) (STO:MIPS) will increase its dividend from last year's comparable payment on the 15th of May to SEK6.00. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

See our latest analysis for Mips

Mips' Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, the company was paying out 246% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Analysts expect a massive rise in earnings per share in the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 58% 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. Since 2019, the dividend has gone from SEK2.50 total annually to SEK6.00. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. 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 Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately, Mips' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. With anaemic earnings growth, it's not confidence inspiring to see Mips paying out more than double what it is earning. Meaning that on balance, the dividend is more likely to fall in the future than to grow.

Mips' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Mips will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Mips (2 shouldn't be ignored!) that you should be aware of before investing. 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.