Svenska Cellulosa Aktiebolaget (STO:SCA B) Is Paying Out A Larger Dividend Than Last Year

Svenska Cellulosa Aktiebolaget SCA (publ) (STO:SCA B) will increase its dividend from last year's comparable payment on the 2nd of April to SEK2.75. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Svenska Cellulosa Aktiebolaget

Svenska Cellulosa Aktiebolaget's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last dividend, Svenska Cellulosa Aktiebolaget is earning enough to cover the payment, but then it makes up 201% of 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.

Looking forward, earnings per share is forecast to rise by 46.0% over the next year. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from SEK4.75 total annually to SEK2.75. Doing the maths, this is a decline of about 5.3% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Unfortunately, Svenska Cellulosa Aktiebolaget's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The company has been growing at a pretty soft 0.09% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Svenska Cellulosa Aktiebolaget's Dividend

Overall, we always like to see the dividend being raised, but we don't think Svenska Cellulosa Aktiebolaget will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for Svenska Cellulosa Aktiebolaget that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.