VBG Group (STO:VBG B) Is Increasing Its Dividend To SEK7.25

VBG Group AB (publ)'s (STO:VBG B) dividend will be increasing from last year's payment of the same period to SEK7.25 on 20th of May. This makes the dividend yield about the same as the industry average at 2.6%.

Our free stock report includes 1 warning sign investors should be aware of before investing in VBG Group. Read for free now.

VBG Group's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, VBG Group was paying a whopping 303% as a dividend, but this only made up 36% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, earnings per share is forecast to rise by 27.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for VBG 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 annual payment back then was SEK3.00, compared to the most recent full-year payment of SEK7.25. This implies that the company grew its distributions at a yearly rate of about 9.2% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. VBG Group has impressed us by growing EPS at 12% per year over the past five years. VBG Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think VBG Group's payments are rock solid. While VBG Group is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 VBG Group that investors should know about before committing capital to this stock. 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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