Ambea's (STO:AMBEA) Upcoming Dividend Will Be Larger Than Last Year's

The board of Ambea AB (publ) (STO:AMBEA) has announced that it will be paying its dividend of SEK2.20 on the 21st of May, an increased payment from last year's comparable dividend. This will take the annual payment to 2.2% of the stock price, which is above what most companies in the industry pay.

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Ambea's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Ambea's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 37.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Ambea

Ambea's Dividend Has Lacked Consistency

Ambea has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The annual payment during the last 7 years was SEK1.00 in 2018, and the most recent fiscal year payment was SEK2.20. This means that it has been growing its distributions at 12% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

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. Ambea has impressed us by growing EPS at 24% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Ambea's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Ambea has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Ambea not quite the opportunity you were looking for? Why not check out our selection of top 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.