Thule Group's (STO:THULE) Shareholders Will Receive A Smaller Dividend 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. This means the annual payment is 3.1% of the current stock price, which is above the average for the industry.

See our latest analysis for Thule Group

Thule Group's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Thule Group was paying out quite a large proportion of both earnings and cash flow, with the dividend being 119% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

The next year is set to see EPS grow by 50.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 74% which would be quite comfortable going to take the dividend forward.

Thule Group's Dividend Has Lacked Consistency

Looking back, Thule Group's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2015, the annual payment back then was SEK2.00, compared to the most recent full-year payment of SEK9.20. This means that it has been growing its distributions at 21% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Growth Potential

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. It's encouraging to see that Thule Group has been growing its earnings per share at 7.0% a year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Thule Group's Dividend Doesn't Look Sustainable

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. The payments are bit high to be considered sustainable, and the track record isn't the best. 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. To that end, Thule Group has 3 warning signs (and 1 which is significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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