Wallenstam (STO:WALL B) Has Announced A Dividend Of SEK0.30

Wallenstam AB (publ)'s (STO:WALL B) investors are due to receive a payment of SEK0.30 per share on 6th of November. This payment means the dividend yield will be 1.6%, which is below the average for the industry.

Check out our latest analysis for Wallenstam

Wallenstam'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. Wallenstam is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 5.6%, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from SEK0.313 total annually to SEK0.60. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Wallenstam May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, Wallenstam's earnings per share has shrunk at approximately 3.4% per annum. 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. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Wallenstam's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Wallenstam that investors need to be conscious of moving forward. Is Wallenstam not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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