Gränges (STO:GRNG) Is Due To Pay A Dividend Of SEK1.60

Gränges AB (publ) (STO:GRNG) will pay a dividend of SEK1.60 on the 19th of November. Even though the dividend went up, the yield is still quite low at only 2.5%.

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Gränges' Payment Could Potentially Have Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Gränges was earning enough to cover the dividend, but free cash flows weren't positive. 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 48.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 23% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Gränges

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was SEK1.50, compared to the most recent full-year payment of SEK3.20. This works out to be a compound annual growth rate (CAGR) of approximately 7.9% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Gränges might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Gränges has seen EPS rising for the last five years, at 14% per annum. Gränges definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Gränges' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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. To that end, Gränges has 2 warning signs (and 1 which is potentially serious) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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