RaySearch Laboratories (STO:RAY B) Is Paying Out A Larger Dividend Than Last Year

The board of RaySearch Laboratories AB (publ) (STO:RAY B) has announced that it will be paying its dividend of SEK3.00 on the 30th of May, an increased payment from last year's comparable dividend. This will take the annual payment to 1.2% of the stock price, which is above what most companies in the industry pay.

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RaySearch Laboratories' Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, RaySearch Laboratories' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 21.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for RaySearch Laboratories

RaySearch Laboratories' Dividend Has Lacked Consistency

It's comforting to see that RaySearch Laboratories has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2016, the annual payment back then was SEK0.25, compared to the most recent full-year payment of SEK3.00. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. RaySearch Laboratories has seen EPS rising for the last five years, at 31% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that RaySearch Laboratories could prove to be a strong dividend payer.

We Really Like RaySearch Laboratories' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for RaySearch Laboratories that investors need to be conscious of moving forward. Is RaySearch Laboratories not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.