Thule Group's (STO:THULE) Dividend Will Be SEK4.75

The board of Thule Group AB (publ) (STO:THULE) has announced that it will pay a dividend on the 10th of October, with investors receiving SEK4.75 per share. This takes the annual payment to 3.0% of the current stock price, which is about average for the industry.

See our latest analysis for Thule Group

Thule Group's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before this announcement, Thule Group was paying out 89% of earnings, but a comparatively small 59% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 46.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 71% which would be quite comfortable going to take the dividend forward.

Thule Group's Dividend Has Lacked Consistency

Thule Group has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of SEK2.00 in 2015 to the most recent total annual payment of SEK9.50. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Thule Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Achieve

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. However, Thule Group has only grown its earnings per share at 4.7% per annum over the past five years. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Our Thoughts On Thule Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Thule Group will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Thule Group that investors should know about before committing capital to this stock. 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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