Is Poolia AB (publ) (STO:POOL B) A Strong Dividend Stock?

Today we'll take a closer look at Poolia AB (publ) (STO:POOL B) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

In this case, Poolia likely looks attractive to investors, given its 6.5% dividend yield and a payment history of over ten years. We'd guess that plenty of investors have purchased it for the income. That said, the recent jump in the share price will make Poolia's dividend yield look smaller, even though the company prospects could be improving. Some simple research can reduce the risk of buying Poolia for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Poolia!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 395% of Poolia's profits were paid out as dividends in the last 12 months. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

While the above analysis focuses on dividends relative to a company's earnings, we do note Poolia's strong net cash position, which will let it pay larger dividends for a time, should it choose.

Remember, you can always get a snapshot of Poolia's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Poolia's dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was kr0.4 in 2011, compared to kr0.6 last year. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.

It's good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We're not that enthused by this.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Poolia's EPS have declined at around 28% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Poolia's earnings per share, which support the dividend, have been anything but stable.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. First, it's not great to see how much of its earnings are being paid as dividends. Earnings per share are down, and Poolia's dividend has been cut at least once in the past, which is disappointing. With this information in mind, we think Poolia may not be an ideal dividend stock.

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 instance, we've picked out 3 warning signs for Poolia that investors should take into consideration.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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This article by Simply Wall St is general in nature. 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.
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