Today we’ll take a closer look at Havsfrun Investment AB (publ) (STO:HAV B) from a dividend investor’s perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on the income from dividends, it’s important to be a lot more stringent with your investments than the average punter.
With Havsfrun Investment yielding 8.5% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. It would not be a surprise to discover that many investors buy it for the dividends. There are a few simple ways to reduce the risks of buying Havsfrun Investment for its dividend, and we’ll go through these below.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. Although it reported a loss over the past 12 months, Havsfrun Investment currently pays a dividend. When a loss-making financial company pays a dividend, the dividend is not being paid out of profit, which is a concern if the company can’t return to operating profitably.
Remember, you can always get a snapshot of Havsfrun Investment’s latest financial position, by checking our visualisation of its financial health.
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well – nasty. For the purpose of this article, we only scrutinise the last decade of Havsfrun Investment’s dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. Its most recent annual dividend was kr1.50 per share, effectively flat on its first payment ten years ago.
Dividend Growth Potential
Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Havsfrun Investment’s earnings per share have shrunk at 49% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Havsfrun Investment’s earnings per share, which support the dividend, have been anything but stable.
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. First, it’s not great to see a dividend being paid despite the company being unprofitable over the last year. Moreover, earnings have been shrinking. While the dividends have been fairly steady, we’d wonder for how much longer this will be sustainable if earnings continue to decline. With this information in mind, we think Havsfrun Investment may not be an ideal dividend stock.
See if management have their own wealth at stake, by checking insider shareholdings in Havsfrun Investment stock.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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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