CellaVision (STO:CEVI) Is Paying Out A Larger Dividend Than Last Year

CellaVision AB (publ) (STO:CEVI) will increase its dividend from last year's comparable payment on the 12th of May to SEK2.25. Even though the dividend went up, the yield is still quite low at only 1.1%.

View our latest analysis for CellaVision

CellaVision's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, CellaVision was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 79% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 83.7%. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was SEK0.40, compared to the most recent full-year payment of SEK2.25. This means that it has been growing its distributions at 19% per annum over that time. CellaVision 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 Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. CellaVision has impressed us by growing EPS at 11% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Our Thoughts On CellaVision's Dividend

Overall, we always like to see the dividend being raised, but we don't think CellaVision will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 4 analysts we track are forecasting for CellaVision for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection 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.