L E Lundbergföretagen (STO:LUND B) Has Announced That It Will Be Increasing Its Dividend To kr3.75

L E Lundbergföretagen AB (publ) (STO:LUND B) will increase its dividend on the 13th of April to kr3.75. This takes the annual payment to 0.8% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for L E Lundbergföretagen

L E Lundbergföretagen's 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. However, prior to this announcement, L E Lundbergföretagen's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Unless the company can turn things around, EPS could fall by 1.5% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 8.8%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was kr1.88 in 2012, and the most recent fiscal year payment was kr3.75. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Although it's important to note that L E Lundbergföretagen'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 L E Lundbergföretagen will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

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. For example, we've picked out 1 warning sign for L E Lundbergföretagen that investors should know about before committing capital to this stock. 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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