Trelleborg (STO:TREL B) Is Increasing Its Dividend To SEK6.75

The board of Trelleborg AB (publ) (STO:TREL B) has announced that it will be paying its dividend of SEK6.75 on the 2nd of May, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 1.7%.

See our latest analysis for Trelleborg

Trelleborg's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. The last dividend was quite easily covered by Trelleborg's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 34.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of SEK3.00 in 2014 to the most recent total annual payment of SEK6.75. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Trelleborg might have put its house in order since then, but we remain cautious.

Trelleborg May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been crawling upwards at 4.2% per year. Growth of 4.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. For example, we've picked out 1 warning sign for Trelleborg that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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