AB Fagerhult (publ.)'s (STO:FAG) Dividend Will Be Increased To SEK1.60

AB Fagerhult (publ.) (STO:FAG) has announced that it will be increasing its dividend from last year's comparable payment on the 3rd of May to SEK1.60. This will take the annual payment to 2.6% of the stock price, which is above what most companies in the industry pay.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that AB Fagerhult (publ.)'s stock price has increased by 44% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for AB Fagerhult (publ.)

AB Fagerhult (publ.)'s Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last dividend, AB Fagerhult (publ.) is earning enough to cover the payment, but then it makes up 130% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Unless the company can turn things around, EPS could fall by 5.4% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 48%, which is definitely feasible to continue.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was SEK0.722, compared to the most recent full-year payment of SEK1.60. This implies that the company grew its distributions at a yearly rate of about 8.3% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. AB Fagerhult (publ.) might have put its house in order since then, but we remain cautious.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. AB Fagerhult (publ.) has seen earnings per share falling at 5.4% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think AB Fagerhult (publ.)'s payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think AB Fagerhult (publ.) is a great stock to add to your portfolio if income is your focus.

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 1 warning sign for AB Fagerhult (publ.) that you should be aware of before investing. Is AB Fagerhult (publ.) 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.