Swedish Match AB (publ) (STO:SWMA) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 3rd of April, you won't be eligible to receive this dividend, when it is paid on the 9th of April.
Swedish Match's next dividend payment will be kr12.50 per share, on the back of last year when the company paid a total of kr12.50 to shareholders. Based on the last year's worth of payments, Swedish Match has a trailing yield of 2.4% on the current stock price of SEK528.8. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Swedish Match can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Swedish Match is paying out an acceptable 54% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Swedish Match's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Swedish Match's earnings per share have risen 12% per annum over the last five years. Swedish Match is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Swedish Match has delivered an average of 12% per year annual increase in its dividend, based on the past ten years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Swedish Match an attractive dividend stock, or better left on the shelf? Swedish Match's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Swedish Match, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Swedish Match is facing. Case in point: We've spotted 1 warning sign for Swedish Match you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 firstname.lastname@example.org. 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.
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