Catena (STO:CATE) Will Pay A Larger Dividend Than Last Year At SEK4.13

The board of Catena AB (publ) (STO:CATE) has announced that it will be paying its dividend of SEK4.13 on the 7th of November, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 2.0% is only a modest boost to shareholder returns.

See our latest analysis for Catena

Catena's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Catena's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

If the company can't turn things around, EPS could fall by 6.0% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 79% in the next 12 months which is on the higher end of the range we would say is sustainable.

Catena 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. The dividend has gone from an annual total of SEK2.00 in 2014 to the most recent total annual payment of SEK8.26. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Catena 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.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Catena has seen earnings per share falling at 6.0% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Catena will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Catena is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Catena has 5 warning signs (and 1 which can't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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