Axfood (STO:AXFO) Will Pay A Dividend Of SEK4.25

The board of Axfood AB (publ) (STO:AXFO) has announced that it will pay a dividend on the 25th of September, with investors receiving SEK4.25 per share. This takes the dividend yield to 2.9%, which shareholders will be pleased with.

See our latest analysis for Axfood

Axfood's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Axfood's dividend made up quite a large proportion of earnings but only 48% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 27.8%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 66% which brings it into quite a comfortable range.

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 means that it has been growing its distributions at 8.5% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Has Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Axfood has been growing its earnings per share at 8.1% a year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On Axfood's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. With a reasonable track record and good earnings coverage, the payments look sustainable. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 5 analysts we track are forecasting for Axfood for free with public analyst estimates for the company. 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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