Know This Before Buying Sika AG (VTX:SIKA) For Its Dividend
Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Sika AG (VTX:SIKA) has begun paying dividends recently. It now yields 1.3%. Let’s dig deeper into whether Sika should have a place in your portfolio.
View our latest analysis for Sika
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is it the top 25% annual dividend yield payer?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has the amount of dividend per share grown over the past?
Is is able to pay the current rate of dividends from its earnings?
Will it be able to continue to payout at the current rate in the future?
How well does Sika fit our criteria?
The company currently pays out 38.8% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect SIKA’s payout to increase to 43.2% of its earnings, which leads to a dividend yield of around 1.8%. Moreover, EPS should increase to CHF5.65. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Sika as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether SIKA one as a stable dividend player.
Relative to peers, Sika produces a yield of 1.3%, which is on the low-side for Chemicals stocks.
Next Steps:
After digging a little deeper into Sika’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three essential aspects you should further research:
Future Outlook: What are well-informed industry analysts predicting for SIKA’s future growth? Take a look at our free research report of analyst consensus for SIKA’s outlook.
Valuation: What is SIKA worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SIKA is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
