Scandi Standard (STO:SCST) Has Announced That It Will Be Increasing Its Dividend To SEK2.50

Scandi Standard AB (publ) (STO:SCST) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of May to SEK2.50. This makes the dividend yield 3.1%, which is above the industry average.

Scandi Standard's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Scandi Standard was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 71.8% over the next year. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Scandi Standard

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was SEK1.30 in 2015, and the most recent fiscal year payment was SEK2.50. This works out to be a compound annual growth rate (CAGR) of approximately 6.8% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Scandi Standard May Find It Hard To Grow The Dividend

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 have grown at around 3.2% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 3.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. 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 Scandi Standard'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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Scandi Standard that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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