AddLife (STO:ALIF B) Has Announced That Its Dividend Will Be Reduced To SEK1.20

AddLife AB (publ) (STO:ALIF B) has announced that on 11th of May, it will be paying a dividend ofSEK1.20, which a reduction from last year's comparable dividend. The dividend yield of 0.9% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for AddLife

AddLife's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by AddLife's earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 26.1% if recent trends continue. 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.

AddLife's Dividend Has Lacked Consistency

Looking back, AddLife's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of SEK0.375 in 2017 to the most recent total annual payment of SEK1.20. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. AddLife has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that AddLife has been growing its earnings per share at 26% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that AddLife could prove to be a strong dividend payer.

We Really Like AddLife's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that AddLife has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for AddLife you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.