Gränges (STO:GRNG) Will Pay A Dividend Of SEK1.60

The board of Gränges AB (publ) (STO:GRNG) has announced that it will pay a dividend on the 19th of November, with investors receiving SEK1.60 per share. This takes the annual payment to 2.6% of the current stock price, which unfortunately is below what the industry is paying.

We've discovered 2 warning signs about Gränges. View them for free.

Gränges' Future Dividend Projections Appear Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. 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.

Over the next year, EPS is forecast to expand by 54.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 22%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 dividend has gone from SEK1.50 total annually to SEK3.20. This works out to be a compound annual growth rate (CAGR) of approximately 7.9% a year 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.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Gränges has impressed us by growing EPS at 5.8% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Gränges will make a great income stock. While Gränges is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Gränges has 2 warning signs (and 1 which is a bit unpleasant) 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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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.