Svenska Cellulosa Aktiebolaget's (STO:SCA B) Upcoming Dividend Will Be Larger Than Last Year's

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. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.

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Svenska Cellulosa Aktiebolaget's Payment Could Potentially Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last dividend, Svenska Cellulosa Aktiebolaget is earning enough to cover the payment, but then it makes up 160% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 55.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Svenska Cellulosa Aktiebolaget

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 SEK5.25 in 2015 to the most recent total annual payment of SEK3.00. This works out to be a decline of approximately 5.4% per year over that time. 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 track record hasn't been stellar, we really want to see earnings per share growing over time. Svenska Cellulosa Aktiebolaget's earnings per share has shrunk at 25% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Svenska Cellulosa Aktiebolaget's Dividend Doesn't Look Sustainable

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 would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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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