Gränges' (STO:GRNG) Dividend Will Be Increased To SEK3.20

The board of Gränges AB (publ) (STO:GRNG) has announced that it will be paying its dividend of SEK3.20 on the 19th of May, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 2.3%.

Check out our latest analysis for Gränges

Gränges' Future Dividend Projections Appear Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Gränges is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 69.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of SEK1.50 in 2015 to the most recent total annual payment of SEK3.20. This means that it has been growing its distributions at 7.9% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 3.7% per year. If Gränges is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Gränges will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Gränges that investors should know about before committing capital to this stock. Is Gränges not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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