Axfood (STO:AXFO) Is Due To Pay A Dividend Of SEK4.25

The board of Axfood AB (publ) (STO:AXFO) has announced that it will pay a dividend of SEK4.25 per share on the 25th of September. This takes the dividend yield to 3.1%, which shareholders will be pleased with.

Check out our latest analysis for Axfood

Axfood's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Axfood's dividend made up quite a large proportion of earnings but only 39% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 26.6%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 65% which would be quite comfortable going to take the dividend forward.

Axfood Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was SEK3.75 in 2014, and the most recent fiscal year payment was SEK8.50. This works out to be a compound annual growth rate (CAGR) of approximately 8.5% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

We Could See Axfood's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Axfood has impressed us by growing EPS at 8.2% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend is easily covered by cash flows and has a good track record, but we think the payout ratio might be a bit high. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Earnings growth generally bodes well for the future value of company dividend payments. See if the 5 Axfood analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Axfood not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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