Sika's (VTX:SIKA) Dividend Will Be Increased To CHF3.30

Sika AG (VTX:SIKA) will increase its dividend from last year's comparable payment on the 3rd of April to CHF3.30. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.

Check out our latest analysis for Sika

Sika's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Sika's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 47.8%. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.

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. The dividend has gone from an annual total of CHF2.05 in 2019 to the most recent total annual payment of CHF3.30. This works out to be a compound annual growth rate (CAGR) of approximately 10.0% a year 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. Sika has impressed us by growing EPS at 7.1% per 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

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Sika that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.