CTT Systems (STO:CTT) Is Increasing Its Dividend To SEK4.05

CTT Systems AB (publ)'s (STO:CTT) dividend will be increasing from last year's payment of the same period to SEK4.05 on 11th of May. This makes the dividend yield about the same as the industry average at 1.9%.

See our latest analysis for CTT Systems

CTT Systems' Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, CTT Systems' was paying out quite a large proportion of earnings and 94% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

The next year is set to see EPS grow by 118.3%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 35% which would be quite comfortable going to take the dividend forward.

CTT Systems' Dividend Has Lacked Consistency

Looking back, CTT Systems' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the dividend has gone from SEK0.40 total annually to SEK4.05. This means that it has been growing its distributions at 34% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Growth Potential

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. It's encouraging to see that CTT Systems has been growing its earnings per share at 6.9% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

Overall, we always like to see the dividend being raised, but we don't think CTT Systems will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for CTT Systems that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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