Investment AB Öresund's (STO:ORES) Dividend Will Be Increased To SEK3.60

The board of Investment AB Öresund (publ) (STO:ORES) has announced that the dividend on 7th of May will be increased to SEK3.60, which will be 2.9% higher than last year's payment of SEK3.50 which covered the same period. This takes the dividend yield to 6.0%, which shareholders will be pleased with.

See our latest analysis for Investment AB Öresund

Investment AB Öresund's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Investment AB Öresund's dividend was only 33% of earnings, however it was paying out 165% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to fall by 1.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 80%, which is definitely on the higher side.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from SEK3.75 total annually to SEK7.00. This implies that the company grew its distributions at a yearly rate of about 6.4% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Investment AB Öresund'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.

Investment AB Öresund's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Investment AB Öresund will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Investment AB Öresund 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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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.