Micro Systemation (STO:MSAB B) Will Pay A Dividend Of SEK0.50

The board of Micro Systemation AB (publ) (STO:MSAB B) has announced that it will pay a dividend on the 20th of November, with investors receiving SEK0.50 per share. This makes the dividend yield 3.5%, which will augment investor returns quite nicely.

View our latest analysis for Micro Systemation

Micro Systemation's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 275% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 57%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 37%, which is in a comfortable range for us.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from SEK0.10 total annually to SEK1.50. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. 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.

There Isn't Much Room 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 encouraging to see that Micro Systemation has been growing its earnings per share at 8.2% a 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

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for Micro Systemation that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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