ProfilGruppen (STO:PROF B) Will Pay A Smaller Dividend Than Last Year

ProfilGruppen AB (publ) (STO:PROF B) has announced that on 25th of April, it will be paying a dividend ofSEK4.00, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 3.9%, which is lower than the average for the industry.

Check out our latest analysis for ProfilGruppen

ProfilGruppen's Dividend Is Well Covered By Earnings

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, ProfilGruppen's dividend was only 32% of earnings, however it was paying out 658% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS could expand by 5.0% if recent trends continue. If the dividend continues on this path, the payout ratio could be 35% by next year, which we think can be pretty sustainable going forward.

ProfilGruppen's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2017, the dividend has gone from SEK3.00 total annually to SEK4.00. This means that it has been growing its distributions at 4.9% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

ProfilGruppen May Find It Hard To Grow The Dividend

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. Earnings has been rising at 5.0% per annum over the last five years, which admittedly is a bit slow. If ProfilGruppen is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While ProfilGruppen is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 5 warning signs for ProfilGruppen that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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