Sleep Cycle's (STO:SLEEP) Dividend Will Be Increased To SEK3.00

Sleep Cycle AB (publ) (STO:SLEEP) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of April to SEK3.00. This makes the dividend yield 7.4%, which is above the industry average.

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Sleep Cycle's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made 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.

Looking forward, earnings per share is forecast to rise by 49.6% over the next year. If the dividend continues on this path, the payout ratio could be 65% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Sleep Cycle

Sleep Cycle Is Still Building Its Track Record

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. The dividend has gone from an annual total of SEK1.00 in 2023 to the most recent total annual payment of SEK3.00. This implies that the company grew its distributions at a yearly rate of about 73% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Sleep Cycle has grown earnings per share at 92% per year over the past three years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Our Thoughts On Sleep Cycle's Dividend

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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Sleep Cycle that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.