Scott Technology (NZSE:SCT) Will Pay A Larger Dividend Than Last Year At NZ$0.05

Scott Technology Limited (NZSE:SCT) will increase its dividend from last year's comparable payment on the 19th of November to NZ$0.05. This will take the annual payment to 2.7% of the stock price, which is above what most companies in the industry pay.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Scott Technology's stock price has increased by 52% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Scott Technology's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Scott Technology'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.

Looking forward, earnings per share is forecast to rise by 67.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Scott Technology

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The most recent annual payment of NZ$0.08 is about the same as the annual payment 10 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Scott Technology has seen EPS rising for the last five years, at 28% per annum. Scott Technology is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Scott Technology Looks Like A Great Dividend Stock

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. All of these factors considered, we think this has solid potential as a dividend 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. As an example, we've identified 1 warning sign for Scott Technology that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.