Sandvik's (STO:SAND) Dividend Will Be Increased To SEK5.00

The board of Sandvik AB (publ) (STO:SAND) has announced that it will be paying its dividend of SEK5.00 on the 5th of May, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 2.3%, which is below the industry average.

Check out our latest analysis for Sandvik

Sandvik Doesn't Earn Enough To Cover Its Payments

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last dividend, Sandvik is earning enough to cover the payment, but then it makes up 106% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Earnings per share is forecast to rise by 44.5% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 102%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was SEK3.50, compared to the most recent full-year payment of SEK5.00. This means that it has been growing its distributions at 3.6% per annum over that time. 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.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, Sandvik's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Sandvik will make a great income stock. While Sandvik is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 2 warning signs for Sandvik that investors need to be conscious of moving forward. Is Sandvik not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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