Cloetta's (STO:CLA B) Dividend Will Be Increased To kr1.00

Cloetta AB (publ) (STO:CLA B) will increase its dividend on the 13th of April to kr1.00. This will take the annual payment from 4.3% to 4.3% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Cloetta

Cloetta's Payment Has Solid Earnings Coverage

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 indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 8.0% 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

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 6 years was kr0.50 in 2016, and the most recent fiscal year payment was kr1.00. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. 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.

We Could See Cloetta's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Cloetta has impressed us by growing EPS at 6.2% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Cloetta that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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