Skellerup Holdings (NZSE:SKL) Is Paying Out A Larger Dividend Than Last Year

The board of Skellerup Holdings Limited (NZSE:SKL) has announced that it will be paying its dividend of NZ$0.0871 on the 16th of March, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 4.1%, providing a nice boost to shareholder returns.

View our latest analysis for Skellerup Holdings

Skellerup Holdings' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. At the time of the last dividend payment, Skellerup Holdings was paying out a very large proportion of what it was earning and 125% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

EPS is set to grow by 30.0% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 82% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was NZ$0.07 in 2013, and the most recent fiscal year payment was NZ$0.205. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Skellerup Holdings has impressed us by growing EPS at 13% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Skellerup Holdings will make a great income stock. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We don't think Skellerup Holdings is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Skellerup Holdings that you should be aware of before investing. Is Skellerup Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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