Sandvik (STO:SAND) Has Announced That It Will Be Increasing Its Dividend To SEK5.75

Sandvik AB (publ)'s (STO:SAND) dividend will be increasing from last year's payment of the same period to SEK5.75 on 7th of May. This takes the annual payment to 2.5% of the current stock price, which is about average for the industry.

Sandvik's Projected Earnings Seem Likely To Cover Future Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Sandvik was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 68.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

See our latest analysis for Sandvik

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of SEK3.50 in 2015 to the most recent total annual payment of SEK5.75. This works out to be a compound annual growth rate (CAGR) of approximately 5.1% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

We Could See Sandvik's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Sandvik has seen EPS rising for the last five years, at 7.0% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Our Thoughts On Sandvik's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Sandvik that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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