Profoto Holding's (STO:PRFO) Shareholders Will Receive A Smaller Dividend Than Last Year

Profoto Holding AB (publ) (STO:PRFO) has announced that on 21st of May, it will be paying a dividend ofSEK3.75, which a reduction from last year's comparable dividend. The dividend yield of 4.9% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Profoto Holding

Profoto Holding Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 97% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

EPS is set to fall by 2.6% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 99%, which is definitely a bit high to be sustainable going forward.

Profoto Holding Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. Since 2022, the dividend has gone from SEK3.50 total annually to SEK3.75. This implies that the company grew its distributions at a yearly rate of about 3.5% over that duration. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Profoto Holding's Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Profoto Holding has been growing its earnings per share at 11% a year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. Strong earnings growth means Profoto Holding has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Profoto Holding that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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