Saab AB (publisher) (STO: SAAB B) will increase its dividend on April 13 to 4.90 kr. This will increase the annual payout from 2.1% to 2.1% of the share price, which is higher than most companies in the industry pay.
Check out our latest analysis for Saab
Saab’s payment has strong revenue coverage
We like to see strong dividend yields, but that doesn’t matter if the payout isn’t sustainable. However, prior to this announcement, Saab’s dividend was comfortably covered by both cash flow and earnings. As a result, much of what he earned was plowed back into the business.
Over the next year, EPS is expected to increase by 19.4%. If the dividend continues to follow recent trends, we estimate the payout ratio to be 28%, which is within the range that allows us to be comfortable with the sustainability of the dividend.
The company’s dividend history has been marked by instability, with at least 1 cut in the past 10 years. The first annual payment in the past 10 years was 3.50 kr in 2012, and the most recent year payment was 4.90 kr. This means that it has increased its distributions by 3.4% per year during this period. The dividend has had some fluctuations in the past, so even though the dividend has been increased this year, we have to remember that it has been reduced in the past.
Saab could increase its dividend
With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate dividend growth in the future. Saab has impressed us by increasing EPS by 6.5% per year over the past five years. A low payout ratio and decent growth suggest the company is reinvesting well, and also has plenty of room to grow the dividend over time.
In summary, it’s great to see that the company can increase the dividend and keep it within a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company’s dividend record. The payout isn’t outstanding, but it could be a decent addition to a dividend portfolio.
Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. At the same time, there are other factors that our readers should be aware of before investing capital in a stock. For example, we chose 2 warning signs for Saab that investors should be aware of before committing capital to this security. If you are a dividend investor, you can also consult our curated list of high performing dividend stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.