Billerud's (STO:BILL) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Billerud AB (publ) (STO:BILL) has announced that it will be paying its dividend of SEK3.50 on the 27th of May, an increased payment from last year's comparable dividend. This makes the dividend yield 3.7%, which is above the industry average.

Our free stock report includes 2 warning signs investors should be aware of before investing in Billerud. Read for free now.

Billerud's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, Billerud is earning enough to cover the payment, but then it makes up 147% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 40.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 36% by next year, which is in a pretty sustainable range.

View our latest analysis for Billerud

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. The dividend has gone from an annual total of SEK2.25 in 2015 to the most recent total annual payment of SEK3.50. This means that it has been growing its distributions at 4.5% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

We Could See Billerud's Dividend Growing

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. It's encouraging to see that Billerud has been growing its earnings per share at 7.5% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Billerud's Dividend

Overall, we always like to see the dividend being raised, but we don't think Billerud will make a great income stock. While Billerud is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Billerud that investors should know about before committing capital to this stock. Is Billerud not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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