Sika (VTX:SIKA) Is 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. Even though the dividend went up, the yield is still quite low at only 1.6%.

Sika's Projected Earnings Seem Likely To Cover Future Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Sika was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 35.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 38% by next year, which is in a pretty sustainable range.

View our latest analysis for Sika

Sika Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 6 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from an annual total of CHF2.05 in 2019 to the most recent total annual payment of CHF3.60. This implies that the company grew its distributions at a yearly rate of about 9.8% over that duration. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

The Dividend Has Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Sika has grown earnings per share at 7.9% 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.

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. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Sika that you should be aware of before investing. Is Sika not quite the opportunity you were looking for? Why not check out our selection of top 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.