Sandvik (STO:SAND) Is Increasing Its Dividend To SEK5.75

The board of Sandvik AB (publ) (STO:SAND) has announced that it will be paying its dividend of SEK5.75 on the 7th of May, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 2.5%, which is fairly typical for the industry.

See our latest analysis for Sandvik

Sandvik's Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last dividend was quite easily covered by Sandvik's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 68.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was SEK3.50, compared to the most recent full-year payment of SEK5.75. This means that it has been growing its distributions at 5.1% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Sandvik might have put its house in order since then, but we remain cautious.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Sandvik has been growing its earnings per share at 7.0% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On Sandvik's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. As an example, we've identified 1 warning sign for Sandvik that you should be aware of before investing. Is Sandvik not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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