Fabege (STO:FABG) Will Pay A Dividend Of SEK0.45

Fabege AB (publ) (STO:FABG) will pay a dividend of SEK0.45 on the 5th of July. This means that the annual payment is 2.2% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Fabege

Fabege's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. While Fabege is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 2.1%, so there isn't too much pressure on the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from SEK1.50 total annually to SEK1.80. This works out to be a compound annual growth rate (CAGR) of approximately 1.8% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 41% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Fabege (of which 1 is a bit concerning!) you should know about. Is Fabege not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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