It looks like Instalco AB (publ) (STO:INSTAL) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 8th of May to receive the dividend, which will be paid on the 14th of May.
Instalco's next dividend payment will be kr2.30 per share, on the back of last year when the company paid a total of kr2.30 to shareholders. Calculating the last year's worth of payments shows that Instalco has a trailing yield of 1.9% on the current share price of SEK118.4. If you buy this business for its dividend, you should have an idea of whether Instalco's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Instalco paying out a modest 30% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 15% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Instalco's earnings have been skyrocketing, up 57% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last two years, Instalco has lifted its dividend by approximately 45% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Should investors buy Instalco for the upcoming dividend? Instalco has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Instalco looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Instalco is facing. To help with this, we've discovered 4 warning signs for Instalco that you should be aware of before investing in their shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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