Thule Group (STO:THULE) Is Paying Out Less In Dividends Than Last Year

Thule Group AB (publ) (STO:THULE) is reducing its dividend from last year's comparable payment to SEK4.60 on the 10th of October. However, the dividend yield of 3.3% is still a decent boost to shareholder returns.

Check out our latest analysis for Thule Group

Thule Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the dividend made up 88% of cash flows, but a higher proportion of net income. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Looking forward, earnings per share is forecast to rise by 88.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Thule Group's Dividend Has Lacked Consistency

Looking back, Thule Group's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the dividend has gone from SEK2.00 total annually to SEK9.20. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings has been rising at 3.8% per annum over the last five years, which admittedly is a bit slow. So the company has struggled to grow its EPS yet it's still paying out 103% of its earnings. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Thule Group that investors need to be conscious of moving forward. 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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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.