A strong pickup in demand and low interest rates have left Sweden's capital goods makers so well capitalized that investors now are trying to figure out which companies are more likely to distribute surplus cash to shareholders.

Even after meeting their debt obligations and paying ordinary dividends to shareholders, the country's 18 largest publicly traded capital goods companies together may be sitting on a cash pile of 100 billion Swedish kronor ($14.76 billion) in 2011, according to a report compiled by investment bank Carnegie. Capital goods companies comprise major-appliance makers and those that supply machinery, tools and equipment used to make other products.

"The sector has never had a net cash position before," Carnegie said. The strong balance sheets could trigger acquisitions or more cash for shareholders through one-off dividends or stock buybacks, it added.

Investors in Sweden's capital goods sector are unaccustomed to windfalls. There have been only 11 instances of one-off dividends among these companies in the past 10 years and Carnegie said it is unlikely that all the surplus cash will be distributed to shareholders.

Carnegie has identified some companies it believes have potential to reward shareholders in 2011. It said that extra dividends are likely from household appliance maker Electrolux AB(ELUX-B.SK), Swiss-Swedish electrical engineering company ABB Ltd. (ABB) and defense company Saab AB (SAAB-B.SK).

Electrolux would be able to pay shareholders between SEK15 and SEK20 per share on top of its regular dividend, equivalent to more than 20% of its market capitalization.

Saab and would be able to pay SEK19 per share and ABB SEK25, according to Carnegie.

"Among these players, we believe Electrolux offers the greatest chance of extra cash distribution," said Carnegie, adding that Saab and ABB traditionally were more focused on acquisitions and, therefore, were more likely to hold on to their cash.

Electrolux, Saab and ABB were unable to comment on the possibility of one-off dividends, and referred to dividend proposals that will be put forward with the release of their fourth-quarter results. At 1500 GMT, Electrolux shares traded down 1.8% at SEK186.90. Saab traded up 1.3% at SEK128.30 and ABB traded down 1.3% at SEK149.

Other well-capitalized companies that Carnegie said could distribute more cash are Atlas Copco AB (ATCO-A.SK) and Alfa Laval AB (ALFA.SK), which have significant cash reserves. At its capital markets day in November last year, Alfa Laval said it wouldn't rule out share buybacks or extra dividends as the company tried to make its balance sheet "more efficient." Alfa Laval referred to its forthcoming dividend proposal in its quarterly result.

Carnegie's view isn't shared by everyone. Niclas Hoglund, equity analyst at Swedbank, thinks it is still too soon for many companies to think about paying extra dividends. "Even though the credit market has improved, I think companies are still worried about the availability of capital," he said. "The financial crisis is still fresh in mind."

Hoglund sees some exceptional cases, such as Electrolux, which has a low level of debt and has indicated that its balance-sheet strength could be better utilized.

He also pointed to construction giant Skanska AB (SKA-B.SK), which last week gained SEK5 billion from the sale of its stake in the Autopista highway in Chile, and to automotive parts maker Haldex AB (HLDX.SK), which last month divested one of its divisions to BorgWarner Inc. (BWA) for SEK1.43 billion, saying these companies are likely to resort to extra cash distribution.

In an earlier interview, analyst Bengt Claesson at SEB Enskilda said he expects Skanska to distribute about 60% of its gain as an additional dividend, but Chairman Sverker Martin-Lof told Dow Jones Newswires that no discussion regarding extra dividends will be taken before the deal was finalized.

Haldex Chief Executive Joakim Olsson didn't rule out giving the money from the spinoff to shareholders. "Either we will invest the money in [the remaining business units] CVS and Hydraulics or distribute the money to shareholders through dividends. That is for the board of directors to decide," Olsson said in a previous interview.

Swedbank's Hoglund added that the cases of Skanska and Haldex were exceptional, and it likely would be "a couple of years" before there was a broader trend in one-off dividends.

"In the last business cycle we didn't see any extra cash dividends until 2006 and 2007," he said.

-By Sven Grundberg, Dow Jones Newswires; +46-8-5451-3098; sven.grundberg@dowjones.com
Sandvik AB (PK) (USOTC:SDVKY)
Historical Stock Chart
From Jul 2024 to Aug 2024 Click Here for more Sandvik AB (PK) Charts.
Sandvik AB (PK) (USOTC:SDVKY)
Historical Stock Chart
From Aug 2023 to Aug 2024 Click Here for more Sandvik AB (PK) Charts.