Knowit (STO:KNOW) Is Increasing Its Dividend To SEK3.75

Knowit AB (publ) (STO:KNOW) has announced that it will be increasing its dividend from last year's comparable payment on the 21st of November to SEK3.75. This will take the dividend yield to an attractive 6.0%, providing a nice boost to shareholder returns.

View our latest analysis for Knowit

Knowit's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment made up 80% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to rise by 37.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 64%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

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 SEK3.25 in 2013, and the most recent fiscal year payment was SEK7.50. This implies that the company grew its distributions at a yearly rate of about 8.7% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Knowit's EPS has declined at around 3.1% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Knowit's Dividend

Overall, we always like to see the dividend being raised, but we don't think Knowit will make a great income stock. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Knowit that investors should know about before committing capital to this stock. Is Knowit 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.