Stratec (ETR:SBS) Has Announced That Its Dividend Will Be Reduced To €0.55

The board of Stratec SE (ETR:SBS) has announced it will be reducing its dividend by 43% from last year's payment of €0.97 on the 22nd of May, with shareholders receiving €0.55. The dividend yield of 2.3% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Stratec

Stratec's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Looking forward, earnings per share is forecast to rise by 183.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Stratec Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from €0.50 total annually to €0.97. This implies that the company grew its distributions at a yearly rate of about 6.9% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth Is Doubtful

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that Stratec's earnings per share has fallen at approximately 6.4% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Stratec's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payout levels might be a bit high for our liking, but we can't deny that until now, the payments have been pretty consistent. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Stratec has 2 warning signs (and 1 which can't be ignored) we think you should know about. Is Stratec not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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