Synsam (STO:SYNSAM) Will Pay A Larger Dividend Than Last Year At SEK1.80

Synsam AB (publ) (STO:SYNSAM) has announced that it will be increasing its dividend from last year's comparable payment on the 6th of May to SEK1.80. Despite this raise, the dividend yield of 3.3% is only a modest boost to shareholder returns.

View our latest analysis for Synsam

Synsam's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before this announcement, Synsam was paying out 86% of earnings, but a comparatively small 30% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

The next year is set to see EPS grow by 134.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Synsam Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2022, the annual payment back then was SEK1.70, compared to the most recent full-year payment of SEK1.80. This works out to be a compound annual growth rate (CAGR) of approximately 2.9% a year over that time. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Synsam's Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Synsam has been growing its earnings per share at 75% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Synsam hasn't been doing.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 2 warning signs for Synsam that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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