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There is a lot to be liked about AB SKF (publ) (STO:SKF B) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 3.6% to shareholders, making it a relatively attractive dividend stock. Should it have a place in your portfolio? Let's take a look at AB SKF in more detail.
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- 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 have the ability to keep paying its dividends going forward?
How does AB SKF fare?
The company currently pays out 38% 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 SKF B's payout to increase to 48% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.7%. However, EPS is forecasted to fall to SEK12.62 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. SKF B has increased its DPS from SEK3.5 to SEK6 in the past 10 years. It has also been paying out dividend consistently during this time, as you'd expect for a company increasing its dividend levels. This is an impressive feat, which makes SKF B a true dividend rockstar.
Compared to its peers, AB SKF generates a yield of 3.6%, which is high for Machinery stocks but still below the market's top dividend payers.
Taking into account the dividend metrics, AB SKF ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I've put together three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for SKF B’s future growth? Take a look at our free research report of analyst consensus for SKF B’s outlook.
- Valuation: What is SKF B 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 SKF B is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.