Elekta (STO:EKTA B) Will Pay A Dividend Of SEK1.20

Elekta AB (publ) (STO:EKTA B) will pay a dividend of SEK1.20 on the 31st of August. This means the dividend yield will be fairly typical at 2.9%.

Check out our latest analysis for Elekta

Elekta's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, the company was paying out 97% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Over the next year, EPS is forecast to expand by 141.4%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 43% which brings it into quite a comfortable range.

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 annual payment during the last 10 years was SEK1.25 in 2013, and the most recent fiscal year payment was SEK2.40. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Come By

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. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. 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.

Elekta's Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. 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. Overall, this doesn't get us very excited from an income standpoint.

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 example, we've picked out 1 warning sign for Elekta 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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