AF Gruppen (OB:AFG) Will Pay A Dividend Of kr6.50

The board of AF Gruppen ASA (OB:AFG) has announced that it will pay a dividend of kr6.50 per share on the 25th of May. This means the annual payment is 5.3% of the current stock price, which is above the average for the industry.

See our latest analysis for AF Gruppen

AF Gruppen Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, the dividend made up 79% of cash flows, but a higher proportion of net income. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

The next 12 months is set to see EPS grow by 3.0%. If the dividend continues on its recent course, the payout ratio in 12 months could be 118%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was kr4.50, compared to the most recent full-year payment of kr10.50. This implies that the company grew its distributions at a yearly rate of about 8.8% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. AF Gruppen has seen EPS rising for the last five years, at 5.1% per annum. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for AF Gruppen that investors need to be conscious of moving forward. 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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