Sleep Cycle (STO:SLEEP) Is Paying Out A Larger Dividend Than Last Year

Sleep Cycle AB (publ) (STO:SLEEP) will increase its dividend from last year's comparable payment on the 15th of April to SEK3.00. This makes the dividend yield 6.8%, which is above the industry average.

Check out our latest analysis for Sleep Cycle

Sleep Cycle's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last dividend, Sleep Cycle is earning enough to cover the payment, but then it makes up 102% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 19.3%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 81% which is a bit high but can definitely be sustainable.

Sleep Cycle 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. Since 2023, the annual payment back then was SEK1.00, compared to the most recent full-year payment of SEK3.00. This means that it has been growing its distributions at 73% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Sleep Cycle has been growing its earnings per share at 92% a year over the past three years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Sleep Cycle could prove to be a strong dividend payer.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Sleep Cycle's payments are rock solid. While Sleep Cycle is earning enough to cover the payments, the cash flows are lacking. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Sleep Cycle that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.