Should Income Investors Look At Svenska Cellulosa Aktiebolaget SCA (publ) (STO:SCA B) Before Its Ex-Dividend?

Simply Wall St
Simply Wall St.

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Svenska Cellulosa Aktiebolaget SCA (publ) (STO:SCA B) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 1st of April to receive the dividend, which will be paid on the 7th of April.

Svenska Cellulosa Aktiebolaget's next dividend payment will be kr2.00 per share, and in the last 12 months, the company paid a total of kr2.00 per share. Last year's total dividend payments show that Svenska Cellulosa Aktiebolaget has a trailing yield of 2.1% on the current share price of SEK97. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Scroll to continue with content
Ad

See our latest analysis for Svenska Cellulosa Aktiebolaget

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Svenska Cellulosa Aktiebolaget paid out just 9.0% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 122% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Svenska Cellulosa Aktiebolaget's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Svenska Cellulosa Aktiebolaget to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

OM:SCA B Historical Dividend Yield March 27th 2020
OM:SCA B Historical Dividend Yield March 27th 2020

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Svenska Cellulosa Aktiebolaget's earnings per share have risen 19% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Svenska Cellulosa Aktiebolaget has seen its dividend decline 5.4% per annum on average over the past ten years, which is not great to see. Svenska Cellulosa Aktiebolaget is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Svenska Cellulosa Aktiebolaget an attractive dividend stock, or better left on the shelf? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. In summary, it's hard to get excited about Svenska Cellulosa Aktiebolaget from a dividend perspective.

While it's tempting to invest in Svenska Cellulosa Aktiebolaget for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for Svenska Cellulosa Aktiebolaget (2 are a bit concerning!) that you ought to be aware of before buying the shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

What to Read Next