AB Sagax (STO:SAGA A) Has Announced That It Will Be Increasing Its Dividend To SEK2.70

AB Sagax (publ)'s (STO:SAGA A) dividend will be increasing from last year's payment of the same period to SEK2.70 on 16th of May. Although the dividend is now higher, the yield is only 1.0%, which is below the industry average.

View our latest analysis for AB Sagax

AB Sagax's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, AB Sagax was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 3.4% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 55%, which we are pretty comfortable with and we think is feasible on an earnings basis.

AB Sagax 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. The annual payment during the last 10 years was SEK0.182 in 2013, and the most recent fiscal year payment was SEK2.70. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. It's not great to see that AB Sagax's earnings per share has fallen at approximately 3.4% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Our Thoughts On AB Sagax's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, AB Sagax has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is AB Sagax not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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