SinterCast (STO:SINT) Will Pay A Larger Dividend Than Last Year At SEK2.75
SinterCast AB (publ) (STO:SINT) will increase its dividend from last year's comparable payment on the 15th of November to SEK2.75. This makes the dividend yield 5.1%, which is above the industry average.
View our latest analysis for SinterCast
SinterCast's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 113% of what it was earning and 93% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.
EPS is set to grow by 66.0% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 86% - on the higher side, but we wouldn't necessarily say this is unsustainable.
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 SEK1.00, compared to the most recent full-year payment of SEK5.50. This implies that the company grew its distributions at a yearly rate of about 19% 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
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 4.1% per annum over the last five years, which admittedly is a bit slow. The earnings growth is anaemic, and the company is paying out 113% of its profit. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.
The Dividend Could Prove To Be Unreliable
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.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for SinterCast (1 is potentially serious!) that you should be aware of before investing. Is SinterCast not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
About OM:SINT
SinterCast
Offers process control technology and solutions for the production of compacted graphite iron (CGI) to foundry and automotive industries in the Sweden and internationally.
Outstanding track record with flawless balance sheet and pays a dividend.