Micro Systemation (STO:MSAB B) Is Due To Pay A Dividend Of SEK0.50

The board of Micro Systemation AB (publ) (STO:MSAB B) has announced that it will pay a dividend of SEK0.50 per share on the 20th of November. This means the annual payment is 3.4% of the current stock price, which is above the average for the industry.

View our latest analysis for Micro Systemation

Micro Systemation's Future Dividends May Potentially Be At Risk

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Micro Systemation's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS could expand by 8.2% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 268%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of SEK0.10 in 2014 to the most recent total annual payment of SEK1.50. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. Micro Systemation has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

There Isn't Much Room To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Micro Systemation has impressed us by growing EPS at 8.2% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

Our Thoughts On Micro Systemation's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Micro Systemation's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Micro Systemation that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.