The board of Ratos AB (publ) (STO:RATO B) has announced that it will be increasing its dividend on the 29th of March to kr1.20. This makes the dividend yield 2.3%, which is above the industry average.
Ratos' Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Ratos was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to expand by 145.5%. If the dividend continues on this path, the payout ratio could be 24% by next year, which we think can be pretty sustainable going forward.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from kr5.25 in 2012 to the most recent annual payment of kr1.20. Dividend payments have fallen sharply, down 77% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend Looks Likely To Grow
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Ratos has seen EPS rising for the last five years, at 41% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.
We Really Like Ratos' Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Ratos that investors should know about before committing capital to this stock. Is Ratos not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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.