Biotage's (STO:BIOT) Dividend Will Be Increased To SEK1.65

The board of Biotage AB (publ) (STO:BIOT) has announced that it will be paying its dividend of SEK1.65 on the 2nd of May, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 1.9%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Biotage's stock price has reduced by 46% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

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Biotage's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Biotage's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 55.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Biotage

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of SEK0.75 in 2015 to the most recent total annual payment of SEK1.65. This works out to be a compound annual growth rate (CAGR) of approximately 8.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Biotage might have put its house in order since then, but we remain cautious.

Biotage May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 4.4% a year for the past five years, which isn't massive but still better than seeing them shrink. The company has been growing at a pretty soft 4.4% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Biotage that you should be aware of before investing. Is Biotage not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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