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

Bonava AB (publ) (STO:BONAV B) will increase its dividend from last year's comparable payment on the 6th of October to SEK1.75. This will take the dividend yield to an attractive 9.6%, providing a nice boost to shareholder returns.

See our latest analysis for Bonava

Bonava's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Bonava is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to fall by 24.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 48%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Bonava's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2017, the annual payment back then was SEK3.80, compared to the most recent full-year payment of SEK3.50. The dividend has shrunk at around 1.6% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Come By

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. It's not great to see that Bonava's earnings per share has fallen at approximately 6.6% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Bonava's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Bonava will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Bonava is a great stock to add to your portfolio if income is your focus.

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. To that end, Bonava has 3 warning signs (and 2 which don't sit too well with us) we think you should know about. Is Bonava not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.