Is Electra Gruppen AB (publ) (STO:ELEC) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

In this case, Electra Gruppen likely looks attractive to investors, given its 6.7% dividend yield and a payment history of over ten years. We'd guess that plenty of investors have purchased it for the income. Some simple research can reduce the risk of buying Electra Gruppen for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Electra Gruppen!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, Electra Gruppen paid out 91% of its profit as dividends. With a payout ratio this high, we'd say its dividend is not well covered by earnings. This may be fine if earnings are growing, but it might not take much of a downturn for the dividend to come under pressure.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Electra Gruppen paid out 118% of its free cash last year. Cash flows can be lumpy, but this dividend was not well covered by cash flow. As Electra Gruppen's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

While the above analysis focuses on dividends relative to a company's earnings, we do note Electra Gruppen's strong net cash position, which will let it pay larger dividends for a time, should it choose.

Remember, you can always get a snapshot of Electra Gruppen's latest financial position, by checking our visualisation of its financial health.

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. For the purpose of this article, we only scrutinise the last decade of Electra Gruppen's dividend payments. This dividend has been unstable, which we define as having fallen by at least 20% one or more times over this time. During the past ten-year period, the first annual payment was kr3.00 in 2010, compared to kr3.25 last year. Dividend payments have grown at less than 1% a year over this period.