Skanska's (STO:SKA B) Upcoming Dividend Will Be Larger Than Last Year's

Skanska AB (publ) (STO:SKA B) has announced that it will be increasing its dividend from last year's comparable payment on the 14th of April to SEK8.00. Based on this payment, the dividend yield for the company will be 3.3%, which is fairly typical for the industry.

See our latest analysis for Skanska

Skanska's Future Dividend Projections Appear Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite easily covered by Skanska's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 48.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from SEK6.75 total annually to SEK8.00. This means that it has been growing its distributions at 1.7% 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.

Skanska May Find It Hard To Grow The Dividend

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

Our Thoughts On Skanska's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Skanska's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Skanska that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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