Axfood (STO:AXFO) Is Increasing Its Dividend To SEK4.00

The board of Axfood AB (publ) (STO:AXFO) has announced that it will be paying its dividend of SEK4.00 on the 27th of September, an increased payment from last year's comparable dividend. This will take the annual payment to 3.5% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Axfood

Axfood's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment made up 82% of earnings, but cash flows were much higher. 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.

The next year is set to see EPS grow by 20.3%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 74% which brings it into quite a comfortable range.

Axfood Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was SEK3.00 in 2013, and the most recent fiscal year payment was SEK8.15. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

We Could See Axfood's Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. Axfood has impressed us by growing EPS at 6.9% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On Axfood's Dividend

Overall, we always like to see the dividend being raised, but we don't think Axfood will make a great income stock. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Axfood that investors need to be conscious of moving forward. Is Axfood not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.