CellaVision's (STO:CEVI) Upcoming Dividend Will Be Larger Than Last Year's

CellaVision AB (publ)'s (STO:CEVI) dividend will be increasing from last year's payment of the same period to SEK2.25 on 12th of May. Even though the dividend went up, the yield is still quite low at only 1.2%.

View our latest analysis for CellaVision

CellaVision's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, CellaVision's dividend was only 54% of earnings, however it was paying out 140% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next year is set to see EPS grow by 87.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend 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 works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

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. We are encouraged to see that CellaVision has grown earnings per share at 9.3% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think CellaVision's payments are rock solid. While CellaVision is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 4 CellaVision analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is CellaVision not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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