RaySearch Laboratories (STO:RAY B) Is Increasing Its Dividend To SEK3.00

The board of RaySearch Laboratories AB (publ) (STO:RAY B) has announced that it will be paying its dividend of SEK3.00 on the 30th of May, an increased payment from last year's comparable dividend. This makes the dividend yield 1.3%, which is above the industry average.

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RaySearch Laboratories' Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, RaySearch Laboratories was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 23.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 50% by next year, which is in a pretty sustainable range.

See our latest analysis for RaySearch Laboratories

RaySearch Laboratories' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the dividend has gone from SEK0.25 total annually to SEK3.00. This works out to be a compound annual growth rate (CAGR) of approximately 32% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that RaySearch Laboratories has grown earnings per share at 31% per year over the past five years. 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.

RaySearch Laboratories Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that RaySearch Laboratories is a strong income stock thanks to its track record and growing earnings. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for RaySearch Laboratories that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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