Investors In Götenehus Group AB (publ) (STO:GHUS B) Should Consider This, First

Is Götenehus Group AB (publ) (STO:GHUS B) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

In this case, Götenehus Group likely looks attractive to dividend investors, given its 3.3% dividend yield and five-year payment history. It sure looks interesting on these metrics - but there's always more to the story. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.

Click the interactive chart for our full dividend analysis

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. 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. In the last year, Götenehus Group paid out 61% of its profit as dividends. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business - which could be good or bad.

While the above analysis focuses on dividends relative to a company's earnings, we do note Götenehus Group'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 Götenehus Group's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Looking at the data, we can see that Götenehus Group has been paying a dividend for the past five years. During the past five-year period, the first annual payment was kr0.05 in 2016, compared to kr0.1 last year. Dividends per share have grown at approximately 25% per year over this time. Götenehus Group's dividend payments have fluctuated, so it hasn't grown 25% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

It's not great to see that the payment has been cut in the past. We're generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Götenehus Group's earnings per share have been essentially flat over the past five years. Flat earnings per share are acceptable for a time, but over the long term, the purchasing power of the company's dividends could be eroded by inflation.

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. Götenehus Group's payout ratio is within normal bounds. Earnings per share are down, and Götenehus Group's dividend has been cut at least once in the past, which is disappointing. In summary, we're unenthused by Götenehus Group as a dividend stock. It's not that we think it is a bad company; it simply falls short of our criteria in some key areas.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 4 warning signs for Götenehus Group that investors should take into consideration.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield 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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