Metsä Board Oyj (HEL:METSB) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 27th of March will not receive the dividend, which will be paid on the 7th of April.
Metsä Board Oyj’s next dividend payment will be €0.24 per share. Last year, in total, the company distributed €0.24 to shareholders. Last year’s total dividend payments show that Metsä Board Oyj has a trailing yield of 5.0% on the current share price of €4.814. If you buy this business for its dividend, you should have an idea of whether Metsä Board Oyj’s dividend is reliable and sustainable. So we need to investigate whether Metsä Board Oyj can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Metsä Board Oyj is paying out an acceptable 59% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 97% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect – but we’d generally want look more closely here.
Metsä Board Oyj paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Cash is king, as they say, and were Metsä Board Oyj to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we’re glad to see Metsä Board Oyj’s earnings per share have risen 15% per annum over the last five years. Earnings have been growing at a decent rate, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, seven years ago, Metsä Board Oyj has lifted its dividend by approximately 22% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Is Metsä Board Oyj an attractive dividend stock, or better left on the shelf? Earnings per share growth is a positive, and the company’s payout ratio looks normal. However, we note Metsä Board Oyj paid out a much higher percentage of its free cash flow, which makes us uncomfortable. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of Metsä Board Oyj’s dividend merits.
With that being said, if dividends aren’t your biggest concern with Metsä Board Oyj, you should know about the other risks facing this business. To help with this, we’ve discovered 2 warning signs for Metsä Board Oyj that you should be aware of before investing in their shares.
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.
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