Cloetta (STO:CLA B) Will Pay A Larger Dividend Than Last Year At kr1.00

Cloetta AB (publ) (STO:CLA B) will increase its dividend on the 13th of April to kr1.00. This takes the dividend yield from 4.0% to 4.0%, which shareholders will be pleased with.

View our latest analysis for Cloetta

Cloetta's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Cloetta's earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 8.0%. 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

Looking back, Cloetta's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the dividend has gone from kr0.50 to kr1.00. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Cloetta has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

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. Cloetta has seen EPS rising for the last five years, at 6.2% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Cloetta that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.