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Atrium Ljungberg AB (publ)'s (STO:ATRLJ B) Could Be A Buy For Its Upcoming Dividend

Simply Wall St

It looks like Atrium Ljungberg AB (publ) (STO:ATRLJ B) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 26th of March will not receive this dividend, which will be paid on the 1st of April.

Atrium Ljungberg's upcoming dividend is kr5.00 a share, following on from the last 12 months, when the company distributed a total of kr5.00 per share to shareholders. Last year's total dividend payments show that Atrium Ljungberg has a trailing yield of 3.4% on the current share price of SEK148.8. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Atrium Ljungberg can afford its dividend, and if the dividend could grow.

View our latest analysis for Atrium Ljungberg

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Atrium Ljungberg paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Atrium Ljungberg generated enough free cash flow to afford its dividend. It paid out 7.4% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Atrium Ljungberg's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

OM:ATRLJ B Historical Dividend Yield, March 21st 2020

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Atrium Ljungberg's earnings have been skyrocketing, up 35% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Atrium Ljungberg looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, Atrium Ljungberg has lifted its dividend by approximately 8.3% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Atrium Ljungberg for the upcoming dividend? Atrium Ljungberg has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Atrium Ljungberg, and we would prioritise taking a closer look at it.

While it's tempting to invest in Atrium Ljungberg for the dividends alone, you should always be mindful of the risks involved. Be aware that Atrium Ljungberg is showing 4 warning signs in our investment analysis, and 2 of those make us uncomfortable...

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.