Profoto Holding's (STO:PRFO) Dividend Will Be Reduced To SEK1.00

Profoto Holding AB (publ) (STO:PRFO) has announced that on 16th of May, it will be paying a dividend ofSEK1.00, which a reduction from last year's comparable dividend. The yield is still above the industry average at 5.0%.

View our latest analysis for Profoto Holding

Profoto Holding's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Profoto Holding was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next year is set to see EPS grow by 23.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 26%, which is in the range that makes us comfortable with the sustainability of the dividend.

Profoto Holding's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2022, the annual payment back then was SEK3.50, compared to the most recent full-year payment of SEK2.00. The dividend has fallen 43% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Is Doubtful

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Profoto Holding's EPS has declined at around 6.6% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Profoto Holding's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Profoto Holding is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

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. For example, we've identified 3 warning signs for Profoto Holding (1 is concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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