Scandinavian Tobacco Group (CPH:STG) Is Increasing Its Dividend To DKK8.25

The board of Scandinavian Tobacco Group A/S (CPH:STG) has announced that it will be paying its dividend of DKK8.25 on the 18th of April, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 6.1%, which is fairly typical for the industry.

See our latest analysis for Scandinavian Tobacco Group

Scandinavian Tobacco Group's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite easily covered by Scandinavian Tobacco Group's 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 fall by 10.3%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 57%, which is comfortable for the company to continue in the future.

Scandinavian Tobacco Group Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 7 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 7 years was DKK5.00 in 2016, and the most recent fiscal year payment was DKK8.25. This implies that the company grew its distributions at a yearly rate of about 7.4% over that duration. Scandinavian Tobacco Group has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Scandinavian Tobacco Group has seen EPS rising for the last five years, at 19% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Scandinavian Tobacco Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Scandinavian Tobacco Group is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Scandinavian Tobacco Group has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. 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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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.