Trelleborg's (STO:TREL B) Shareholders Will Receive A Bigger Dividend Than Last Year

Trelleborg AB (publ) (STO:TREL B) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of May to SEK6.00. Based on this payment, the dividend yield for the company will be 2.3%, which is fairly typical for the industry.

View our latest analysis for Trelleborg

Trelleborg's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Trelleborg's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 41.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was SEK2.50, compared to the most recent full-year payment of SEK6.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.1% 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.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been crawling upwards at 2.6% per year. Trelleborg is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Trelleborg's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 4 warning signs for Trelleborg that investors should know about before committing capital to this stock. Is Trelleborg not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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