BioGaia's (STO:BIOG B) Shareholders Will Receive A Bigger Dividend Than Last Year

BioGaia AB (publ) (STO:BIOG B) has announced that it will be increasing its dividend on the 13th of May to kr14.92. This takes the dividend yield from 0.8% to 3.4%, which shareholders will be pleased with.

View our latest analysis for BioGaia

BioGaia Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, BioGaia's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Earnings per share is forecast to rise by 20.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 131%, which probably can't continue putting some pressure on the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was kr2.00 in 2012, and the most recent fiscal year payment was kr3.63. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. 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.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. BioGaia hasn't seen much change in its earnings per share over the last five years. While growth may be thin on the ground, BioGaia could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. As an example, we've identified 1 warning sign for BioGaia that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.