Tele2 (STO:TEL2 B) Is Reducing Its Dividend To SEK3.15

Tele2 AB (publ) (STO:TEL2 B) has announced that on 15th of October, it will be paying a dividend ofSEK3.15, which a reduction from last year's comparable dividend. The yield is still above the industry average at 4.4%.

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Tele2's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Tele2's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Earnings per share is forecast to rise by 36.7% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 86% - on the higher side, but we wouldn't necessarily say this is unsustainable.

View our latest analysis for Tele2

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was SEK4.85 in 2015, and the most recent fiscal year payment was SEK6.35. This implies that the company grew its distributions at a yearly rate of about 2.7% over that duration. 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.

There Isn't Much Room To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Tele2 has impressed us by growing EPS at 9.8% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Our Thoughts On Tele2's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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 probably look elsewhere for an income investment.

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. Taking the debate a bit further, we've identified 2 warning signs for Tele2 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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