Rederiaktiebolaget Gotland (STO:GOTL A) Is Increasing Its Dividend To SEK20.30

Rederiaktiebolaget Gotland (publ) (STO:GOTL A) will increase its dividend from last year's comparable payment on the 17th of June to SEK20.30. This takes the annual payment to 0.9% of the current stock price, which unfortunately is below what the industry is paying.

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Rederiaktiebolaget Gotland's Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Rederiaktiebolaget Gotland's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 3.9% over the next 12 months. If the dividend continues on this path, the payout ratio could be 14% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Rederiaktiebolaget Gotland

Rederiaktiebolaget Gotland Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The annual payment during the last 3 years was SEK8.20 in 2022, and the most recent fiscal year payment was SEK20.30. This implies that the company grew its distributions at a yearly rate of about 35% over that duration. 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's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Rederiaktiebolaget Gotland has only grown its earnings per share at 3.9% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Rederiaktiebolaget Gotland's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Rederiaktiebolaget Gotland's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Rederiaktiebolaget Gotland 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.