Solar (CPH:SOLAR B) increases its dividend to 45.00 kr

Solar A/S (CPH:SOLAR B) announced that it will increase its dividend on March 23 to 45.00 kr. This brings the dividend yield from 3.8% to 8.2%, which will delight shareholders.

See our latest analysis for Solar

Solar’s dividend is 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 payout, Solar was earning comfortably enough to cover the dividend. This indicates that a fairly large proportion of profits are reinvested in the business.

Next year is expected to see EPS increase by 37.9%. Assuming the dividend continues on recent trends, we think the payout ratio could be 71% by next year, which is in a fairly sustainable range.

CPSE:SOLAR B Historic Dividend February 13, 2022

Dividend volatility

The company has a long history of dividends, but it doesn’t look good with the cuts of the past. Since 2012, the first annual payment was 9.96 kr, compared to 28.00 kr for the last annual payment. This equates to a compound annual growth rate (CAGR) of approximately 11% per year during this period. Solar has increased its distributions at a rapid pace despite cutting the dividend at least once in the past. Companies that have cut once have often cut again, so we would be cautious about buying these stocks just for the dividend income.

The dividend should increase

Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. It is encouraging to see that Solar has grown its earnings per share by 28% per year over the past five years. The company has no problem growing, despite returning much of the capital to shareholders, which is a very nice combination for a dividend-paying stock.

Solar looks like a big dividend stock

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 that, it looks like a good dividend opportunity.

Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. Yet investors must consider a host of other factors, aside from dividend payments, when analyzing a company. For example, we encountered 2 warning signs for Solar you should be aware, and one of them is concerning. 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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