Epiroc (STO:EPI A) pays bigger dividend than last year

Epiroc AB (publisher) (STO:EPI A) will increase its dividend on May 2 to 1.50 kr. This brings the annual payout to 1.4% of the current share price, which is unfortunately less than what the industry is paying.

Check out our latest analysis for Epiroc

Epiroc payment has strong revenue coverage

While yield is important, another factor to consider regarding a company’s dividend is whether current payout levels are achievable. Prior to this announcement, Epiroc’s dividend was comfortably covered by both cash flow and earnings. This indicates that a large part of the profits are reinvested in the company, with the aim of fueling growth.

Over the next year, EPS is expected to increase by 15.8%. Assuming the dividend continues on recent trends, we think the payout ratio could be 41% by next year, which is in a fairly sustainable range.

OM:EPI A historic dividend 29 January 2022

Epiroc continues to build its balance sheet

In retrospect, the dividend is stable, but the company has not paid a dividend for a very long time, so we cannot be sure that the dividend will remain stable in all economic environments. The dividend has increased from 2.10 kr in 2019 to the most recent annual payment of 3.00 kr. This means that it has increased its distributions by 13% per year during this period. Epiroc has increased its dividend quite quickly, which is exciting. However, the short payout history makes us wonder if this performance will persist through a full market cycle.

The dividend should increase

Investors might be drawn to the stock because of the quality of its payment history. Epiroc has seen EPS increase over the past five years, at 17% per year. Profits are on the rise and pay only a small portion of those profits to shareholders.

We really like Epiroc’s dividend

Overall, we think it could be an attractive income stock, and it’s only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also converted into cash flow. Considering all of this, it looks like a good dividend opportunity.

Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. However, there are other things for investors to consider when analyzing stock performance. Pushing the debate a little further, we have identified 1 warning sign for Epiroc that investors should be aware of going forward. If you are a dividend investor, you can also consult our curated list of high performing dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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