Husqvarna (STO:HUSQ B) Is Paying Out Less In Dividends Than Last Year

Husqvarna AB (publ) (STO:HUSQ B) has announced that on 7th of May, it will be paying a dividend ofSEK0.50, which a reduction from last year's comparable dividend. This means that the annual payment is 2.2% of the current stock price, which is lower than what the rest of the industry is paying.

We've discovered 4 warning signs about Husqvarna. View them for free.

Husqvarna's Payment Could Potentially Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Husqvarna's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 143.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 47% by next year, which is in a pretty sustainable range.

View our latest analysis for Husqvarna

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was SEK1.65, compared to the most recent full-year payment of SEK1.00. This works out to be a decline of approximately 4.9% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 12% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 4 warning signs for Husqvarna that investors need to be conscious of moving forward. Is Husqvarna not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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