Skanska (STO:SKA B) Is Reducing Its Dividend To SEK5.50

Skanska AB (publ)'s (STO:SKA B) dividend is being reduced from last year's payment covering the same period to SEK5.50 on the 5th of April. The dividend yield will be in the average range for the industry at 3.0%.

View our latest analysis for Skanska

Skanska's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. 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.

The next year is set to see EPS grow by 50.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from SEK6.00 total annually to SEK5.50. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Skanska's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 1.7% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Even though the dividend was cut this year, we think Skanska has the ability to make consistent payments in the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Skanska that investors should take into consideration. Is Skanska not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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