Stille (STO:STIL) Has Announced That Its Dividend Will Be Reduced To kr1.00

Stille AB (STO:STIL) has announced it will be reducing its dividend payable on the 12th of May to kr1.00, which is 41% lower than what investors received last year. This payment takes the dividend yield to 0.8%, which only provides a modest boost to overall returns.

Check out our latest analysis for Stille

Stille's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Stille was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, EPS could fall by 1.6% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 36%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Stille's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2014, the dividend has gone from kr1.00 to kr1.70. This works out to be a compound annual growth rate (CAGR) of approximately 6.9% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Stille might have put its house in order since then, but we remain cautious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Stille's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Stille's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 6 warning signs for Stille you should be aware of, and 2 of them can't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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