Dometic Group (STO:DOM) Will Pay A Smaller Dividend Than Last Year

Dometic Group AB (publ)'s (STO:DOM) dividend is being reduced from last year's payment covering the same period to SEK1.30 on the 19th of April. Despite the cut, the dividend yield of 2.1% will still be comparable to other companies in the industry.

View our latest analysis for Dometic Group

Dometic Group's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, Dometic Group's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 26.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dometic Group's Dividend Has Lacked Consistency

It's comforting to see that Dometic Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the dividend has gone from SEK1.85 total annually to SEK1.30. Doing the maths, this is a decline of about 5.7% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings have grown at around 2.0% a year for the past five years, which isn't massive but still better than seeing them shrink. If Dometic Group is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

Overall, while it's not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Dometic Group (of which 1 is concerning!) you should know about. Is Dometic Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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