Sleep Cycle's (STO:SLEEP) Upcoming Dividend Will Be Larger Than Last Year's

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 takes the dividend yield to 6.7%, which shareholders will be pleased with.

View our latest analysis for Sleep Cycle

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

A big dividend yield for a few years doesn't mean much if it 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. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 71.6% over the next year. If the dividend continues on this path, the payout ratio could be 57% by next year, which we think can be pretty sustainable going forward.

Sleep Cycle Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The dividend has gone from an annual total of SEK1.00 in 2023 to the most recent total annual payment of SEK3.00. This means that it has been growing its distributions at 73% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. 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 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

Overall, we always like to see the dividend being raised, but we don't think Sleep Cycle will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Sleep Cycle that investors should take into consideration. Is Sleep Cycle 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.