Fagerhult Group (STO:FAG) Has Announced That Its Dividend Will Be Reduced To SEK1.40

Fagerhult Group AB (STO:FAG) has announced that on 6th of May, it will be paying a dividend ofSEK1.40, which a reduction from last year's comparable dividend. This means the annual payment is 3.5% of the current stock price, which is above the average for the industry.

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Fagerhult Group's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Fagerhult Group's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 59.5% over the next year. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Fagerhult Group

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from SEK1.00 total annually to SEK1.40. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Fagerhult Group's EPS has declined at around 9.5% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Fagerhult Group's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

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. Taking the debate a bit further, we've identified 2 warning signs for Fagerhult Group that investors need to be conscious of moving forward. Is Fagerhult Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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