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AB Electrolux (publ) (STO:ELUX B) has announced that it will be increasing its dividend on the 6th of April to kr4.60. This takes the dividend yield from 5.4% to 15%, which shareholders will be pleased with.
Check out our latest analysis for AB Electrolux
AB Electrolux Is Paying Out More Than It Is Earning
We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. The last payment was quite easily covered by earnings, but it made up 252% 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.
Earnings per share is forecast to rise by 10.4% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 142%, which is a bit high and could start applying pressure to the balance sheet.
AB Electrolux Has A Solid Track Record
Even over a long history of paying dividends, the company’s distributions have been remarkably stable. Since 2012, the first annual payment was kr6.50, compared to the most recent full-year payment of kr9.20. This works out to be a compound annual growth rate (CAGR) of approximately 3.5% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
AB Electrolux May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. Unfortunately, AB Electrolux’s earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Growth of 1.5% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn’t bad in itself, but unless earnings growth pick up we wouldn’t expect dividends to grow either.
In Summary
In summary, while it’s always good to see the dividend being raised, we don’t think AB Electrolux’s payments are rock solid. While AB Electrolux is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
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. Taking the debate a bit further, we’ve identified 1 warning sign for AB Electrolux that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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