Dividend paying stocks like KABE Group AB (publ.) (STO:KABE B) tend to be popular with investors, and for good reason – some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
A 1.5% yield is nothing to get excited about, but investors probably think the long payment history suggests KABE Group AB (publ.) has some staying power. Remember though, due to the recent spike in its share price, KABE Group AB (publ.)’s yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. Some simple research can reduce the risk of buying KABE Group AB (publ.) for its dividend – read on to learn more.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. In the last year, KABE Group AB (publ.) paid out 74% of its profit as dividends. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business – which could be good or bad.
While the above analysis focuses on dividends relative to a company’s earnings, we do note KABE Group AB (publ.)’s strong net cash position, which will let it pay larger dividends for a time, should it choose.
We update our data on KABE Group AB (publ.) every 24 hours, so you can always get our latest analysis of its financial health, here.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of KABE Group AB (publ.)’s dividend payments. Its dividend payments have declined on at least one occasion over the past 10 years. Its most recent annual dividend was kr3.0 per share, effectively flat on its first payment 10 years ago.
Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company’s earnings are not consistent.
Dividend Growth Potential
With a relatively unstable dividend, it’s even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there’s a good chance of bigger dividends in future? It’s not great to see that KABE Group AB (publ.)’s have fallen at approximately 4.6% over the past five years. A modest decline in earnings per share is not great to see, but it doesn’t automatically make a dividend unsustainable. Still, we’d vastly prefer to see EPS growth when researching dividend stocks.
To summarise, shareholders should always check that KABE Group AB (publ.)’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. KABE Group AB (publ.)’s payout ratio is within normal bounds. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than KABE Group AB (publ.) out there.
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. For example, we’ve identified 3 warning signs for KABE Group AB (publ.) (1 is a bit unpleasant!) 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 dividend stocks yielding above 3%.