Is It Worth Considering Scandinavian Tobacco Group A/S (CPH:STG) For Its Upcoming Dividend?

Scandinavian Tobacco Group A/S (CPH:STG) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Scandinavian Tobacco Group's shares before the 14th of April to receive the dividend, which will be paid on the 18th of April.

The company's next dividend payment will be kr.8.25 per share, and in the last 12 months, the company paid a total of kr.8.25 per share. Based on the last year's worth of payments, Scandinavian Tobacco Group has a trailing yield of 6.0% on the current stock price of DKK138. If you buy this business for its dividend, you should have an idea of whether Scandinavian Tobacco Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Scandinavian Tobacco Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Scandinavian Tobacco Group paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 69% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Scandinavian Tobacco Group's earnings per share have risen 19% per annum over the last five years. Scandinavian Tobacco Group is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

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, seven years ago, Scandinavian Tobacco Group has lifted its dividend by approximately 7.4% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Scandinavian Tobacco Group worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Scandinavian Tobacco Group's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 51% and 69% respectively. In summary, it's hard to get excited about Scandinavian Tobacco Group from a dividend perspective.

On that note, you'll want to research what risks Scandinavian Tobacco Group is facing. Every company has risks, and we've spotted 2 warning signs for Scandinavian Tobacco Group (of which 1 shouldn't be ignored!) you should know about.

If you're in the market for strong dividend payers, we recommend checking 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.