Cloetta (STO:CLA B) Has Announced A Dividend Of SEK1.00

The board of Cloetta AB (publ) (STO:CLA B) has announced that it will pay a dividend on the 13th of April, with investors receiving SEK1.00 per share. This makes the dividend yield 4.6%, which will augment investor returns quite nicely.

Check out our latest analysis for Cloetta

Cloetta'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. Before making this announcement, the company's dividend was higher than its profits, and made up 94% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

The next year is set to see EPS grow by 117.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 50% which would be quite comfortable going to take the dividend forward.

Cloetta's Dividend Has Lacked Consistency

Cloetta 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. Since 2016, the annual payment back then was SEK0.50, compared to the most recent full-year payment of SEK1.00. This means that it has been growing its distributions at 10% 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.

Cloetta May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been crawling upwards at 3.1% per year. The earnings growth is anaemic, and the company is paying out 104% of its profit. 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.

Cloetta's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Cloetta's payments, as there could be some issues with sustaining them into the future. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Cloetta (of which 1 shouldn't be ignored!) you should know about. Is Cloetta not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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