Nilörngruppen's (STO:NIL B) Shareholders Will Receive A Bigger Dividend Than Last Year

Nilörngruppen AB (STO:NIL B) will increase its dividend on the 10th of May to kr5.00. This makes the dividend yield 4.4%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Nilörngruppen's stock price has increased by 36% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Nilörngruppen

Nilörngruppen's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Nilörngruppen was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to fall by 30.9%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 92%, which is definitely on the higher side.

Nilörngruppen's Dividend Has Lacked Consistency

Nilörngruppen has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the first annual payment was kr3.00, compared to the most recent full-year payment of kr5.00. This implies that the company grew its distributions at a yearly rate of about 8.9% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Nilörngruppen might have put its house in order since then, but we remain cautious.

We Could See Nilörngruppen's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nilörngruppen has impressed us by growing EPS at 7.1% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Our Thoughts On Nilörngruppen's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Nilörngruppen's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Nilörngruppen (of which 1 is a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.