Arctic Paper (WSE:ATC) Is Reducing Its Dividend To PLN1.00

Arctic Paper S.A.'s (WSE:ATC) dividend is being reduced from last year's payment covering the same period to PLN1.00 on the 18th of June. However, the dividend yield of 4.4% still remains in a typical range for the industry.

View our latest analysis for Arctic Paper

Arctic Paper's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Arctic Paper was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 2.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

Arctic Paper's Dividend Has Lacked Consistency

It's comforting to see that Arctic Paper has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of PLN0.20 in 2018 to the most recent total annual payment of PLN1.00. This works out to be a compound annual growth rate (CAGR) of approximately 31% a year over that time. 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. Arctic Paper has impressed us by growing EPS at 114% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Arctic Paper's Dividend

Overall, we think that Arctic Paper could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Arctic Paper that investors should take into consideration. Is Arctic Paper not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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