Fagerhult Group (STO:FAG) Is Increasing Its Dividend To SEK1.80

Fagerhult Group AB (STO:FAG) will increase its dividend from last year's comparable payment on the 10th of May to SEK1.80. This will take the dividend yield to an attractive 2.5%, providing a nice boost to shareholder returns.

See our latest analysis for Fagerhult Group

Fagerhult Group's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Fagerhult Group's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, EPS could fall by 6.8% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 65%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was SEK0.806, compared to the most recent full-year payment of SEK1.80. This implies that the company grew its distributions at a yearly rate of about 8.4% 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 Is Doubtful

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. In the last five years, Fagerhult Group's earnings per share has shrunk at approximately 6.8% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Fagerhult Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Fagerhult Group's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Fagerhult Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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