Axfood's (STO:AXFO) Shareholders Will Receive A Bigger Dividend Than Last Year

Axfood AB (publ) (STO:AXFO) will increase its dividend from last year's comparable payment on the 27th of September to SEK4.00. This will take the dividend yield to an attractive 3.1%, providing a nice boost to shareholder returns.

View our latest analysis for Axfood

Axfood's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Axfood's dividend made up quite a large proportion of earnings but only 54% 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.

Looking forward, earnings per share is forecast to rise by 25.0% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 70% which would be quite comfortable going to take the dividend forward.

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 means that it has been growing its distributions at 11% per annum over that time. 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

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 seen EPS rising for the last five years, at 6.8% per annum. 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, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. 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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 4 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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