Is Catella AB (publ) (STO:CAT B) A Risky Dividend Stock?
Is Catella AB (publ) (STO:CAT B) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
With a five-year payment history and a 4.7% yield, many investors probably find Catella intriguing. It sure looks interesting on these metrics - but there's always more to the story . There are a few simple ways to reduce the risks of buying Catella for its dividend, and we'll go through these below.
Explore this interactive chart for our latest analysis on Catella!
Payout ratios
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 443% of Catella's profits were paid out as dividends in the last 12 months. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.
We update our data on Catella every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Catella has been paying a dividend for the past five years. During the past five-year period, the first annual payment was kr0.20 in 2014, compared to kr1.20 last year. This works out to be a compound annual growth rate (CAGR) of approximately 43% a year over that time.
We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
Dividend Growth Potential
While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Catella's EPS have fallen by approximately 10% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Catella's earnings per share, which support the dividend, have been anything but stable.
Conclusion
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Catella is paying out a larger percentage of its profit than we're comfortable with. Second, earnings per share have been in decline, and the dividend history is shorter than we'd like. Using these criteria, Catella looks suboptimal from a dividend investment perspective.
Given that earnings are not growing, the dividend does not look nearly so attractive. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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.
