Securitas (STO:SECU B) Will Pay A Smaller Dividend Than Last Year

Securitas AB (publ)'s (STO:SECU B) dividend is being reduced from last year's payment covering the same period to SEK1.75 on the 11th of May. However, the dividend yield of 3.9% still remains in a typical range for the industry.

Check out our latest analysis for Securitas

Securitas' Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, Securitas' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 23.9%. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

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. The annual payment during the last 10 years was SEK3.00 in 2013, and the most recent fiscal year payment was SEK3.45. This means that it has been growing its distributions at 1.4% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Securitas May Find It Hard To Grow The Dividend

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. However, Securitas' EPS was effectively flat over the past five years, which could stop the company from paying more every year.

We should note that Securitas has issued stock equal to 57% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Securitas (2 are potentially serious!) that you should be aware of before investing. Is Securitas not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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