Skanska AB (publ) (STO:SKA B) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 27th of March will not receive this dividend, which will be paid on the 2nd of April.
Skanska's next dividend payment will be kr6.25 per share. Last year, in total, the company distributed kr6.25 to shareholders. Based on the last year's worth of payments, Skanska stock has a trailing yield of around 4.0% on the current share price of SEK155.4. If you buy this business for its dividend, you should have an idea of whether Skanska's dividend is reliable and sustainable. As a result, readers should always check whether Skanska has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Skanska's payout ratio is modest, at just 43% of profit. A useful secondary check can be to evaluate whether Skanska generated enough free cash flow to afford its dividend. It paid out more than half (73%) of its free cash flow in the past year, which is within an average range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Skanska earnings per share are up 9.5% per annum over the last five years. Decent historical earnings per share growth suggests Skanska has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past ten years, Skanska has increased its dividend at approximately 1.8% a year on average.
To Sum It Up
Has Skanska got what it takes to maintain its dividend payments? Earnings per share have been growing at a steady rate, and Skanska paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy Skanska today.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 2 warning signs for Skanska that we recommend you consider before investing in the business.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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