Meko (STO:MEKO) Will Pay A Larger Dividend Than Last Year At SEK1.95

Meko AB (publ) (STO:MEKO) will increase its dividend from last year's comparable payment on the 22nd of May to SEK1.95. This makes the dividend yield 3.1%, which is above the industry average.

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Meko's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Meko was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 73.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 26%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Meko

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was SEK7.00, compared to the most recent full-year payment of SEK3.90. The dividend has shrunk at around 5.7% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Meko hasn't seen much change in its earnings per share over the last five years. Growth of 1.1% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Meko that you should be aware of before investing. Is Meko 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.