Studsvik (STO:SVIK) Is Due To Pay A Dividend Of SEK2.00

The board of Studsvik AB (publ) (STO:SVIK) has announced that it will pay a dividend on the 2nd of May, with investors receiving SEK2.00 per share. Including this payment, the dividend yield on the stock will be 1.5%, which is a modest boost for shareholders' returns.

See our latest analysis for Studsvik

Studsvik's Future Dividend Projections Appear Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before this announcement, Studsvik was paying out 171% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 22% which is fairly sustainable.

Studsvik's Dividend Has Lacked Consistency

It's comforting to see that Studsvik has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of SEK1.00 in 2017 to the most recent total annual payment of SEK2.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.1% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Studsvik has impressed us by growing EPS at 16% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Studsvik's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means Studsvik has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Studsvik that you should be aware of before investing. Is Studsvik not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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