The board of Sika AG (VTX:SIKA) has announced that it will be paying its dividend of CHF3.30 on the 3rd of April, an increased payment from last year’s comparable dividend. Despite this raise, the dividend yield of 1.3% is only a modest boost to shareholder returns.
View our latest analysis for Sika
Sika’s Earnings Easily Cover The Distributions
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, Sika was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.
Looking forward, earnings per share is forecast to rise by 47.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.
Sika Is Still Building Its Track Record
It is great to see that Sika has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2019, the dividend has gone from CHF2.05 total annually to CHF3.30. This works out to be a compound annual growth rate (CAGR) of approximately 10.0% a year over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Sika to be a consistent dividend paying stock.
We Could See Sika’s Dividend Growing
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. Sika has impressed us by growing EPS at 7.1% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
Our Thoughts On Sika’s Dividend
In summary, it’s great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company’s dividend record. The payment isn’t stellar, but it could make a decent addition to a dividend portfolio.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we’ve picked out 2 warning signs for Sika that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.