Skel fjárfestingafélag hf's (ICE:SKEL) Upcoming Dividend Will Be Larger Than Last Year's

Skel fjárfestingafélag hf.'s (ICE:SKEL) dividend will be increasing from last year's payment of the same period to ISK0.31 on 12th of April. Although the dividend is now higher, the yield is only 1.1%, which is below the industry average.

View our latest analysis for Skel fjárfestingafélag hf

Skel fjárfestingafélag hf's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Skel fjárfestingafélag hf's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS could expand by 28.5% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 11%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Skel fjárfestingafélag hf's Dividend Has Lacked Consistency

Skel fjárfestingafélag hf has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the annual payment back then was ISK0.24, compared to the most recent full-year payment of ISK0.181. Doing the maths, this is a decline of about 5.5% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. We are encouraged to see that Skel fjárfestingafélag hf has grown earnings per share at 29% per year over the past five years. EPS has been growing well, but Skel fjárfestingafélag hf has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Our Thoughts On Skel fjárfestingafélag hf's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Skel fjárfestingafélag hf's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Skel fjárfestingafélag hf that you should be aware of before investing. Is Skel fjárfestingafélag hf not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.