ProfilGruppen (STO:PROF B) Will Pay A Dividend Of SEK5.00

The board of ProfilGruppen AB (publ) (STO:PROF B) has announced that it will pay a dividend on the 7th of May, with investors receiving SEK5.00 per share. This means the annual payment will be 4.3% of the current stock price, which is lower than the industry average.

ProfilGruppen's Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, ProfilGruppen's dividend was only 39% of earnings, however it was paying out 155% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS could expand by 4.9% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for ProfilGruppen

ProfilGruppen's Dividend Has Lacked Consistency

ProfilGruppen has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2017, the dividend has gone from SEK3.00 total annually to SEK5.00. This implies that the company grew its distributions at a yearly rate of about 6.6% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

ProfilGruppen May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, ProfilGruppen has only grown its earnings per share at 4.9% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about ProfilGruppen's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for ProfilGruppen that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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