Fabege's (STO:FABG) Upcoming Dividend Will Be Larger Than Last Year's

By
Simply Wall St
Published
May 28, 2021
OM:FABG
Source: Shutterstock

Fabege AB (publ) (STO:FABG) will increase its dividend on the 4th of October to kr1.80. The announced payment will take the dividend yield to 2.7%, which is in line with the average for the industry.

Check out our latest analysis for Fabege

Fabege's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last dividend, Fabege is earning enough to cover the payment, but the it makes up 177% of 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.

Looking forward, earnings per share is forecast to fall by 15.9% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 65%, which is comfortable for the company to continue in the future.

historic-dividend
OM:FABG Historic Dividend May 29th 2021

Fabege Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the first annual payment was kr1.50, compared to the most recent full-year payment of kr3.60. This means that it has been growing its distributions at 9.1% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. In the last five years, Fabege's earnings per share has shrunk at approximately 10.0% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On Fabege's Dividend

Overall, we always like to see the dividend being raised, but we don't think Fabege will make a great income stock. While Fabege is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Fabege (of which 2 don't sit too well with us!) you should know about. We have also put together a list of global stocks with a solid dividend.

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