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 makes the dividend yield 5.4%, which will augment investor returns quite nicely.

Check out 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. Before making this announcement, the company's dividend was higher than its profits, and made up 79% of cash flows. 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 6.3%. If the dividend continues on its recent course, the payout ratio in 12 months could be 114%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from kr4.50 in 2012 to the most recent annual payment of kr10.50. This implies that the company grew its distributions at a yearly rate of about 8.8% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that AF Gruppen has grown earnings per share at 5.1% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

AF Gruppen's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for AF Gruppen that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.