Elekta (STO:EKTA B) Is Due To Pay A Dividend Of SEK1.20

Elekta AB (publ) (STO:EKTA B) will pay a dividend of SEK1.20 on the 31st of August. Based on this payment, the dividend yield on the company's stock will be 2.8%, which is an attractive boost to shareholder returns.

See our latest analysis for Elekta

Elekta's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Looking forward, earnings per share is forecast to rise by 132.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of SEK1.25 in 2013 to the most recent total annual payment of SEK2.40. This works out to be a compound annual growth rate (CAGR) of approximately 6.7% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Elekta's EPS has declined at around 6.9% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

We're Not Big Fans Of Elekta's Dividend

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Elekta make more consistent payments in the future. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.

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. For example, we've picked out 1 warning sign for Elekta that investors should know about before committing capital to this stock. Is Elekta not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.