Stock Analysis

Clas Ohlson's (STO:CLAS B) Upcoming Dividend Will Be Larger Than Last Year's

OM:CLAS B
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Clas Ohlson AB (publ) (STO:CLAS B) has announced that it will be increasing its dividend from last year's comparable payment on the 16th of September to SEK6.50. This will take the annual payment to 8.2% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Clas Ohlson

Clas Ohlson Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Clas Ohlson was paying out quite a large proportion of both earnings and cash flow, with the dividend being 104% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to fall by 4.9% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 166%, which is definitely a bit high to be sustainable going forward.

historic-dividend
OM:CLAS B Historic Dividend September 11th 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was SEK4.25, compared to the most recent full-year payment of SEK6.75. This means that it has been growing its distributions at 4.7% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Clas Ohlson 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. It's not great to see that Clas Ohlson's earnings per share has fallen at approximately 4.6% per year over the past 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.

Clas Ohlson's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Clas Ohlson will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Clas Ohlson that investors need to be conscious of moving forward. Is Clas Ohlson not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.