SinterCast (STO:SINT) Will Pay A Dividend Of SEK3.05

The board of SinterCast AB (publ) (STO:SINT) has announced that it will pay a dividend on the 12th of November, with investors receiving SEK3.05 per share. This will take the annual payment to 5.1% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for SinterCast

SinterCast's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, SinterCast's was paying out quite a large proportion of earnings and 89% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

EPS is set to grow by 39.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was SEK1.20, compared to the most recent full-year payment of SEK6.10. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

SinterCast May Find It Hard To Grow The Dividend

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. Earnings has been rising at 2.7% per annum over the last five years, which admittedly is a bit slow. SinterCast's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Our Thoughts On SinterCast's Dividend

In summary, while it's always good to see the dividend being raised, we don't think SinterCast's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for SinterCast that investors should know about before committing capital to this stock. Is SinterCast not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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