Nyfosa (STO:NYF) Is Increasing Its Dividend To SEK1.00

Nyfosa AB (publ) (STO:NYF) has announced that it will be increasing its dividend from last year's comparable payment on the 4th of October to SEK1.00. This makes the dividend yield 6.5%, which is above the industry average.

View our latest analysis for Nyfosa

Nyfosa's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Even though Nyfosa isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, so there isn't too much pressure on the dividend.

Nyfosa Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. The annual payment during the last 2 years was SEK3.00 in 2021, and the most recent fiscal year payment was SEK4.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Nyfosa has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Nyfosa May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Although it's important to note that Nyfosa's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Nyfosa isn't actually turning a profit, which makes it much harder for us to see how they can grow dividends.

Our Thoughts On Nyfosa's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Nyfosa's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Nyfosa has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Nyfosa 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.