BioGaia (STO:BIOG B) Will Pay A Larger Dividend Than Last Year At SEK6.90

BioGaia AB (publ) (STO:BIOG B) will increase its dividend from last year's comparable payment on the 15th of May to SEK6.90. This will take the dividend yield to an attractive 5.3%, providing a nice boost to shareholder returns.

See our latest analysis for BioGaia

BioGaia Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, BioGaia's dividend was only 53% of earnings, however it was paying out 185% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Earnings per share is forecast to rise by 29.3% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 156% over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of SEK2.00 in 2014 to the most recent total annual payment of SEK6.90. This means that it has been growing its distributions at 13% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

BioGaia Could Grow Its Dividend

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. We are encouraged to see that BioGaia has grown earnings per share at 7.9% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On BioGaia's Dividend

Overall, we always like to see the dividend being raised, but we don't think BioGaia will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for BioGaia that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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