Bilia (STO:BILI A) Has Announced A Dividend Of SEK1.65

Bilia AB (publ) (STO:BILI A) will pay a dividend of SEK1.65 on the 10th of October. The dividend yield will be in the average range for the industry at 4.6%.

View our latest analysis for Bilia

Bilia's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Bilia's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 519% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS is forecast to expand by 48.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which is in the range that makes us 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. The annual payment during the last 10 years was SEK2.25 in 2014, and the most recent fiscal year payment was SEK6.60. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 4.3% a year for the past five years, which isn't massive but still better than seeing them shrink. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Bilia is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. For example, we've picked out 3 warning signs for Bilia that investors should know about before committing capital to this stock. Is Bilia not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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