Bergs Timber (STO:BRG B) Has Announced That It Will Be Increasing Its Dividend To kr0.30

The board of Bergs Timber AB (publ) (STO:BRG B) has announced that it will be increasing its dividend on the 12th of May to kr0.30. This will take the annual payment from 5.7% to 5.7% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Bergs Timber

Bergs Timber's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Bergs Timber's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to fall by 51.8% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 69%, which is comfortable for the company to continue in the future.

Bergs Timber's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The first annual payment during the last 4 years was kr0.05 in 2018, and the most recent fiscal year payment was kr0.30. This implies that the company grew its distributions at a yearly rate of about 57% over that duration. Bergs Timber has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Bergs Timber has seen EPS rising for the last five years, at 31% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Bergs Timber (2 shouldn't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.