AF Gruppen (OB:AFG) Is Due To Pay A Dividend Of NOK6.50

AF Gruppen ASA (OB:AFG) has announced that it will pay a dividend of NOK6.50 per share on the 25th of May. The dividend yield will be 6.9% based on this payment which is still above the industry average.

View our latest analysis for AF Gruppen

AF Gruppen Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company's dividend was higher than its profits, and made up 77% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

The next 12 months is set to see EPS grow by 6.4%. If the dividend continues on its recent course, the payout ratio in 12 months could be 123%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from NOK4.50 total annually to NOK10.50. This works out to be a compound annual growth rate (CAGR) of approximately 8.8% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. AF Gruppen might have put its house in order since then, but we remain cautious.

There Isn't Much Room To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. AF Gruppen has seen EPS rising for the last five years, at 6.7% per annum. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

AF Gruppen's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think AF Gruppen is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for AF Gruppen that investors should know about before committing capital to this stock. Is AF Gruppen not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.