Stratec SE (ETR:SBS) is reducing its dividend to €0.55 on the 22nd of Maywhich is 43% less than last year's comparable payment of €0.97. However, the dividend yield of 2.3% is still a decent boost to shareholder returns.

Check out our latest analysis for Stratec

Stratec's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the dividend made up 98% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to expand by 183.8%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 21% which would be quite comfortable going to take the dividend forward.

Stratec Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of €0.50 in 2014 to the most recent total annual payment of €0.97. This means that it has been growing its distributions at 6.9% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Stratec's EPS has declined at around 6.4% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. Dividend payments have been pretty consistent for a while, but we do think the payout ratios are a little bit high. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Stratec has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.