Paradox Interactive's (STO:PDX) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Paradox Interactive AB (publ) (STO:PDX) has announced that it will be paying its dividend of SEK2.00 on the 25th of May, an increased payment from last year's comparable dividend. This takes the annual payment to 1.0% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Paradox Interactive

Paradox Interactive's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. However, Paradox Interactive's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 24.4%. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.

Paradox Interactive Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2017, the dividend has gone from SEK1.00 total annually to SEK2.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Paradox Interactive has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Paradox Interactive has been growing its earnings per share at 22% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Paradox Interactive's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Paradox Interactive that investors need to be conscious of moving forward. Is Paradox Interactive not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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