Malmbergs Elektriska (STO:MEAB B) Is Paying Out A Larger Dividend Than Last Year

Malmbergs Elektriska AB (publ) (STO:MEAB B) will increase its dividend from last year's comparable payment on the 3rd of May to SEK2.00. This takes the dividend yield to 3.9%, which shareholders will be pleased with.

See our latest analysis for Malmbergs Elektriska

Malmbergs Elektriska's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Malmbergs Elektriska's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 3.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 37%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was SEK3.00, compared to the most recent full-year payment of SEK2.00. This works out to be a decline of approximately 4.0% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Malmbergs Elektriska has seen earnings per share falling at 3.9% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Our Thoughts On Malmbergs Elektriska's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Malmbergs Elektriska's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Malmbergs Elektriska (of which 1 is a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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