Telefonaktiebolaget LM Ericsson (STO:ERIC B) Has Announced A Dividend Of SEK1.35

Telefonaktiebolaget LM Ericsson (publ)'s (STO:ERIC B) investors are due to receive a payment of SEK1.35 per share on 7th of October. This means the annual payment is 4.2% of the current stock price, which is above the average for the industry.

View our latest analysis for Telefonaktiebolaget LM Ericsson

Telefonaktiebolaget LM Ericsson's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. While Telefonaktiebolaget LM Ericsson is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Analysts expect a massive rise in earnings per share in the next year. If the dividend extends its recent trend, estimates say the dividend could reach 9.1%, which we would be comfortable to see continuing.

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 SEK3.00 in 2014 to the most recent total annual payment of SEK2.70. This works out to be a decline of approximately 1.0% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Telefonaktiebolaget LM Ericsson's earnings per share has fallen at approximately 9.3% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Telefonaktiebolaget LM Ericsson's payments, as there could be some issues with sustaining them into the future. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Telefonaktiebolaget LM Ericsson that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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