Axfood's (STO:AXFO) Dividend Will Be Increased To SEK4.25

Axfood AB (publ) (STO:AXFO) will increase its dividend from last year's comparable payment on the 27th of March to SEK4.25. This will take the dividend yield to an attractive 3.0%, providing a nice boost to shareholder returns.

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 78% of earnings, but cash flows were much higher. 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.

Looking forward, earnings per share is forecast to rise by 26.8% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 64% which would be quite comfortable going to take the dividend forward.

Axfood Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the dividend has gone from SEK3.75 total annually to SEK8.50. This means that it has been growing its distributions at 8.5% per annum 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.

The Dividend Has Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. Axfood has impressed us by growing EPS at 8.1% 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.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payments look pretty sustainable with good earnings coverage and a reasonable track record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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