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

SinterCast AB (publ) (STO:SINT) will pay a dividend of SEK3.05 on the 12th of November. This makes the dividend yield 5.5%, which is above the industry average.

Check out our latest analysis for SinterCast

Estimates Indicate SinterCast's Could Struggle to Maintain Dividend Payments In The Future

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, SinterCast's was paying out quite a large proportion of earnings and 84% 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.

Over the next year, EPS is forecast to expand by 10.0%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 96%, which probably can't continue without putting some pressure on the balance sheet.

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. The dividend has gone from an annual total of SEK1.20 in 2014 to the most recent total annual payment of SEK6.10. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. 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.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 3.2% 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. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think SinterCast's payments are rock solid. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for SinterCast that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.