Meko (STO:MEKO) Is Increasing Its Dividend To SEK1.95

Meko AB (publ) (STO:MEKO) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of May to SEK1.95. This will take the dividend yield to an attractive 3.3%, providing a nice boost to shareholder returns.

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Meko's 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. Prior to this announcement, Meko's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 74.3%. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Meko

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from SEK7.00 total annually to SEK3.90. This works out to be a decline of approximately 5.7% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Although it's important to note that Meko'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. The company has been growing at a pretty soft 1.1% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Meko that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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