Stock Analysis

Scandinavian Tobacco Group (CPH:STG) Has Announced That It Will Be Increasing Its Dividend To DKK8.25

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The board of Scandinavian Tobacco Group A/S (CPH:STG) has announced that the dividend on 18th of April will be increased to DKK8.25, which will be 10% higher than last year's payment of DKK7.50 which covered the same period. The payment will take the dividend yield to 5.6%, which is in line with the average for the industry.

See our latest analysis for Scandinavian Tobacco Group

Scandinavian Tobacco Group's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Scandinavian Tobacco Group 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.

Over the next year, EPS is forecast to expand by 15.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.

CPSE:STG Historic Dividend March 12th 2023

Scandinavian Tobacco Group Doesn't Have A Long Payment History

Scandinavian Tobacco Group'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 2016, the dividend has gone from DKK5.00 total annually to DKK7.50. This works out to be a compound annual growth rate (CAGR) of approximately 6.0% 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 Scandinavian Tobacco Group to be a consistent dividend paying stock.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Scandinavian Tobacco Group has seen EPS rising for the last five years, at 19% per annum. 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.

We Really Like Scandinavian Tobacco Group's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 Scandinavian Tobacco Group that you should be aware of before investing. 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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