Thule Group (STO:THULE) Is Paying Out A Larger Dividend Than Last Year

Thule Group AB (publ) (STO:THULE) has announced that it will be increasing its dividend from last year's comparable payment on the 11th of October to SEK6.50. This will take the annual payment to 4.6% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Thule Group

Thule Group's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Thule Group was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

Earnings per share is forecast to rise by 4.2% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 86% which is a bit high but can definitely be sustainable.

Thule Group's Dividend Has Lacked Consistency

Thule Group has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 7 years was SEK2.00 in 2015, and the most recent fiscal year payment was SEK13.00. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Thule Group has seen EPS rising for the last five years, at 21% per annum. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Thule Group's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Thule Group (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is Thule Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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