Creades (STO:CRED A) Is Paying Out A Dividend Of SEK0.40

The board of Creades AB (STO:CRED A) has announced that it will pay a dividend of SEK0.40 per share on the 3rd of November. This means the dividend yield will be fairly typical at 2.0%.

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Creades' Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Creades was paying a whopping 168% as a dividend, but this only made up 17% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Unless the company can turn things around, EPS could fall by 6.3% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 19%, which is definitely feasible to continue.

See our latest analysis for Creades

Creades Doesn't Have A Long Payment History

Creades' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of SEK1.40 in 2016 to the most recent total annual payment of SEK1.60. This means that it has been growing its distributions at 1.5% per annum over that time. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Dividend Growth Is Doubtful

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. It's not great to see that Creades' earnings per share has fallen at approximately 6.3% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Creades is earning enough to cover the payments, the cash flows are lacking. We don't think Creades is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Creades you should be aware of, and 1 of them doesn't sit too well with us. 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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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.