Meko (STO:MEKO) Will Pay A Dividend Of SEK1.95

Meko AB (publ) (STO:MEKO) has announced that it will pay a dividend of SEK1.95 per share on the 20th of November. This takes the dividend yield to 5.1%, which shareholders will be pleased with.

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Meko's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Meko was paying out 83% of earnings, but a comparatively small 46% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 1.8% over the next 12 months if recent trends continue. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 77%, meaning that most of the company's earnings is being paid out to shareholders.

View our latest analysis for Meko

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was SEK7.00, compared to the most recent full-year payment of SEK3.90. Doing the maths, this is a decline of about 5.7% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Meko hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On Meko's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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 probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Meko has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about. Is Meko not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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