Lagercrantz Group's (STO:LAGR B) Upcoming Dividend Will Be Larger Than Last Year's

Lagercrantz Group AB (publ) (STO:LAGR B) has announced that it will be increasing its dividend from last year's comparable payment on the 6th of September to SEK1.30. The payment will take the dividend yield to 1.2%, which is in line with the average for the industry.

Check out our latest analysis for Lagercrantz Group

Lagercrantz Group's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. The last dividend was quite comfortably covered by Lagercrantz Group's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 84% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share is forecast to rise by 31.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was SEK0.306 in 2012, and the most recent fiscal year payment was SEK1.30. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

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. Lagercrantz Group has impressed us by growing EPS at 17% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Lagercrantz Group will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Lagercrantz Group has been making. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 5 Lagercrantz Group analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.