Nilörngruppen (STO:NIL B) Is Reducing Its Dividend To SEK1.00

Nilörngruppen AB (STO:NIL B) has announced that on 21st of May, it will be paying a dividend ofSEK1.00, which a reduction from last year's comparable dividend. This means that the annual payment is 1.4% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for Nilörngruppen

Nilörngruppen's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Nilörngruppen was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 71.9%. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.

Nilörngruppen's Dividend Has Lacked Consistency

Looking back, Nilörngruppen's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the annual payment back then was SEK3.00, compared to the most recent full-year payment of SEK1.00. This works out to a decline of approximately 67% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Is Doubtful

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. In the last five years, Nilörngruppen's earnings per share has shrunk at approximately 9.1% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Nilörngruppen's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Nilörngruppen that investors need to be conscious of moving forward. Is Nilörngruppen not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.