Svenska Cellulosa Aktiebolaget's (STO:SCA B) Dividend Will Be Increased To SEK3.00

The board of Svenska Cellulosa Aktiebolaget SCA (publ) (STO:SCA B) has announced that it will be paying its dividend of SEK3.00 on the 11th of April, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 2.0%, which is below the industry average.

Check out our latest analysis for Svenska Cellulosa Aktiebolaget

Svenska Cellulosa Aktiebolaget's Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Svenska Cellulosa Aktiebolaget's dividend was only 58% of earnings, however it was paying out 160% of free 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 68.0%. If the dividend continues on this path, the payout ratio could be 31% 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. The dividend has gone from an annual total of SEK4.75 in 2015 to the most recent total annual payment of SEK3.00. The dividend has shrunk at around 4.5% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

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. Svenska Cellulosa Aktiebolaget's earnings per share has shrunk at 25% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Svenska Cellulosa Aktiebolaget's payments are rock solid. While Svenska Cellulosa Aktiebolaget is earning enough to cover the payments, the cash flows are lacking. We don't think Svenska Cellulosa Aktiebolaget is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Svenska Cellulosa Aktiebolaget that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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