Cloetta (STO:CLA B) Is Due To Pay A Dividend Of SEK1.00

The board of Cloetta AB (publ) (STO:CLA B) has announced that it will pay a dividend on the 16th of April, with investors receiving SEK1.00 per share. The dividend yield will be 5.5% based on this payment which is still above the industry average.

See our latest analysis for Cloetta

Cloetta's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Cloetta was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 5.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 66% by next year, which is in a pretty sustainable range.

Cloetta's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the dividend has gone from SEK0.50 total annually to SEK1.00. This means that it has been growing its distributions at 9.1% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Cloetta's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On Cloetta's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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. As an example, we've identified 1 warning sign for Cloetta that you should be aware of before investing. Is Cloetta 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.