Skanska (STO:SKA B) Is Paying Out A Larger Dividend Than Last Year

Skanska AB (publ) (STO:SKA B) will increase its dividend on the 5th of April to kr10.00. This will take the dividend yield from 3.0% to 4.3%, providing a nice boost to shareholder returns.

See our latest analysis for Skanska

Skanska's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Skanska'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 0.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 56%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was kr5.75 in 2012, and the most recent fiscal year payment was kr7.00. This means that it has been growing its distributions at 2.0% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth May Be Hard To Achieve

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. Earnings per share has been crawling upwards at 3.6% per year. The company has been growing at a pretty soft 3.6% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Skanska'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 payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Skanska that investors need to be conscious of moving forward. Is Skanska not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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