Could Internationella Engelska Skolan i Sverige Holdings II AB (publ) (STO:ENG) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. 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 only a two-year payment history, and a 1.7% yield, investors probably think Internationella Engelska Skolan i Sverige Holdings II is not much of a dividend stock. Many of the best dividend stocks typically start out paying a low yield, so we wouldn't automatically cut it from our list of prospects. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.
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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, Internationella Engelska Skolan i Sverige Holdings II paid out 29% of its profit as dividends. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.
While the above analysis focuses on dividends relative to a company's earnings, we do note Internationella Engelska Skolan i Sverige Holdings II'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 Internationella Engelska Skolan i Sverige Holdings II's latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. This company's dividend has been unstable, and with a relatively short history, we think it's a little soon to draw strong conclusions about its long term dividend potential. During the past two-year period, the first annual payment was kr1.14 in 2018, compared to kr1.16 last year. Dividend payments have grown at less than 1% a year over this period.