AAK AB (publ.) (STO:AAK) Is Increasing Its Dividend To kr5.50

AAK AB (publ.) (STO:AAK) has announced that it will be increasing its dividend on the 26th of May to kr5.50. This will take the annual payment from 1.4% to 3.1% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for AAK AB (publ.)

AAK AB (publ.)'s Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, AAK AB (publ.) was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

EPS is set to grow by 35.3% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 82%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

AAK AB (publ.) Has A Solid Track Record

The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was kr0.75 in 2012, and the most recent fiscal year payment was kr2.50. This means that it has been growing its distributions at 13% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

AAK AB (publ.) 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. AAK AB (publ.) has impressed us by growing EPS at 7.1% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On AAK AB (publ.)'s Dividend

Overall, we always like to see the dividend being raised, but we don't think AAK AB (publ.) will make a great income stock. While AAK AB (publ.) is earning enough to cover the payments, the cash flows are lacking. We don't think AAK AB (publ.) is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 AAK AB (publ.) analysts we track are forecasting continued growth with our free report on analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.