Dedicare's (STO:DEDI) Dividend Will Be Reduced To SEK2.50

Dedicare AB (publ) (STO:DEDI) is reducing its dividend from last year's comparable payment to SEK2.50 on the 6th of May. This means the annual payment is 5.6% of the current stock price, which is above the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Dedicare's stock price has reduced by 31% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

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Dedicare's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Dedicare's 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 could rise by 9.3% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 54% by next year, which is in a pretty sustainable range.

View our latest analysis for Dedicare

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from SEK2.40 total annually to SEK2.50. Its dividends have grown at less than 1% per annum over this time frame. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dedicare Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Dedicare has impressed us by growing EPS at 9.3% per 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.

We Really Like Dedicare's Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Dedicare does. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 4 warning signs for Dedicare that investors should take into consideration. 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.