Fagerhult Group (STO:FAG) Will Pay A Larger Dividend Than Last Year At SEK1.80

Fagerhult Group AB (STO:FAG) has announced that it will be increasing 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 2.4%, providing a nice boost to shareholder returns.

View our latest analysis for Fagerhult Group

Fagerhult Group's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Fagerhult Group's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 6.8% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 65%, which is definitely feasible to continue.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of SEK0.722 in 2014 to the most recent total annual payment of SEK1.80. This means that it has been growing its distributions at 9.6% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Fagerhult Group might have put its house in order since then, but we remain cautious.

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. 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.

Our Thoughts On Fagerhult Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Fagerhult Group is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Fagerhult Group that investors should know about before committing capital to this stock. 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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