Sika (VTX:SIKA) Has Announced That It Will Be Increasing Its Dividend To CHF3.60

Sika AG (VTX:SIKA) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of March to CHF3.60. Despite this raise, the dividend yield of 1.5% is only a modest boost to shareholder returns.

View our latest analysis for Sika

Sika's Payment Could Potentially Have Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Sika's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 34.8%. 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

Sika's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2019, the annual payment back then was CHF2.05, compared to the most recent full-year payment of CHF3.60. This means that it has been growing its distributions at 9.8% per annum over that time. Sika has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

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. It's encouraging to see that Sika has been growing its earnings per share at 7.9% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On Sika's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen 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. For example, we've picked out 1 warning sign for Sika that investors should know about before committing capital to this stock. 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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