Cloetta (STO:CLA B) Is Increasing Its Dividend To kr1.00

Cloetta AB (publ) (STO:CLA B) has announced that it will be increasing its dividend on the 13th of April to kr1.00. This takes the dividend yield from 4.1% to 4.1%, which shareholders will be pleased with.

See our latest analysis for Cloetta

Cloetta's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Cloetta's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 7.9% over the next year. If the dividend continues on this path, the payout ratio could be 59% by next year, which we think can be pretty sustainable going forward.

Cloetta's Dividend Has Lacked Consistency

It's comforting to see that Cloetta has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the first annual payment was kr0.50, compared to the most recent full-year payment of kr1.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Cloetta Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Cloetta has been growing its earnings per share at 6.2% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Our Thoughts On Cloetta's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Cloetta that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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