Catena's (STO:CATE) Dividend Will Be Increased To SEK4.13

Catena AB (publ) (STO:CATE) will increase its dividend from last year's comparable payment on the 7th of November to SEK4.13. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.

See our latest analysis for Catena

Catena's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Catena was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 5.7% over the next year. If the dividend continues on this path, the payout ratio could be 69% by next year, which we think can be pretty sustainable going forward.

Catena Doesn't Have A Long Payment History

Catena's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 9 years was SEK2.00 in 2014, and the most recent fiscal year payment was SEK8.26. This means that it has been growing its distributions at 17% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Over the past five years, it looks as though Catena's EPS has declined at around 6.0% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Catena's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Catena's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 5 warning signs for Catena (of which 1 is concerning!) you should know about. Is Catena not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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