Projektengagemang Sweden (STO:PENG B) Will Pay A Dividend Of SEK0.40

Projektengagemang Sweden AB (publ)'s (STO:PENG B) investors are due to receive a payment of SEK0.40 per share on 11th of May. This means that the annual payment will be 3.2% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Projektengagemang Sweden

Projektengagemang Sweden's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Projektengagemang Sweden'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 117.3% over the next year. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

Projektengagemang Sweden's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The annual payment during the last 4 years was SEK1.00 in 2019, and the most recent fiscal year payment was SEK0.40. This works out to a decline of approximately 60% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 15% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Our Thoughts On Projektengagemang Sweden's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Projektengagemang Sweden's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 4 warning signs for Projektengagemang Sweden that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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