Axfood's (STO:AXFO) Dividend Will Be Increased To SEK4.15

Axfood AB (publ) (STO:AXFO) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of March to SEK4.15. This will take the dividend yield to an attractive 3.3%, providing a nice boost to shareholder returns.

View our latest analysis for Axfood

Axfood's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Axfood's dividend made up quite a large proportion of earnings but only 53% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

The next year is set to see EPS grow by 11.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 69% by next year, which is in a pretty sustainable 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. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Axfood Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Axfood has impressed us by growing EPS at 9.4% per 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.

We Really Like Axfood's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

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 instance, we've picked out 1 warning sign for Axfood that investors should take into consideration. Is Axfood not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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