Holmen (STO:HOLM B) Will Pay A Larger Dividend Than Last Year At SEK16.00

Holmen AB (publ) (STO:HOLM B) will increase its dividend from last year's comparable payment on the 4th of April to SEK16.00. This makes the dividend yield 3.5%, which is above the industry average.

See our latest analysis for Holmen

Holmen's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, Holmen's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 37.2% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 73%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was SEK4.00 in 2013, and the most recent fiscal year payment was SEK16.00. This means that it has been growing its distributions at 15% 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 see if earnings per share is growing. Holmen has seen EPS rising for the last five years, at 30% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Holmen Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Holmen is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Holmen (1 is significant!) that you should be aware of before investing. Is Holmen 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.