K-Bro Linen (TSE:KBL) Has Re-Affirmed Its Dividend Of CA$0.10

K-Bro Linen Inc. (TSE:KBL) will pay a dividend of CA$0.10 on the 15th of November. The dividend yield will be 2.9% based on this payment which is still above the industry average.

View our latest analysis for K-Bro Linen

K-Bro Linen's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 120% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 39%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS is forecast to expand by 87.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 58% which would be quite comfortable going to take the dividend forward.

historic-dividend

K-Bro Linen Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was CA$1.10 in 2011, and the most recent fiscal year payment was CA$1.20. Dividend payments have been growing, but very slowly over the period. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth May Be Hard To Come By

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. In the last five years, K-Bro Linen's earnings per share has shrunk at approximately 7.8% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On K-Bro Linen's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for K-Bro Linen that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.