Bergs Timber's (STO:BRG B) Upcoming Dividend Will Be Larger Than Last Year's

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 makes the dividend yield 5.2%, which is above the industry average.

View our latest analysis for Bergs Timber

Bergs Timber's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Bergs Timber's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to fall by 51.8%. 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

Looking back, Bergs Timber's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the dividend has gone from kr0.05 to kr0.30. This means that it has been growing its distributions at 43% per annum 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Bergs Timber has grown earnings per share at 31% 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.

Our Thoughts On Bergs Timber's Dividend

Overall, we always like to see the dividend being raised, but we don't think Bergs Timber will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Bergs Timber is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. 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.