Stock Analysis

Mayr-Melnhof Karton's (VIE:MMK) Upcoming Dividend Will Be Larger Than Last Year's

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The board of Mayr-Melnhof Karton AG (VIE:MMK) has announced that the dividend on 10th of May will be increased to €4.20, which will be 20% higher than last year's payment of €3.50 which covered the same period. Although the dividend is now higher, the yield is only 2.3%, which is below the industry average.

See our latest analysis for Mayr-Melnhof Karton

Mayr-Melnhof Karton's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Mayr-Melnhof Karton's dividend was only 19% of earnings, however it was paying out 124% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to fall by 22.7% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 33%, which we are pretty comfortable with and we think is feasible on an earnings basis.

WBAG:MMK Historic Dividend March 17th 2023

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of €2.25 in 2013 to the most recent total annual payment of €3.50. This implies that the company grew its distributions at a yearly rate of about 4.5% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Mayr-Melnhof Karton has grown earnings per share at 17% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Mayr-Melnhof Karton's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Mayr-Melnhof Karton is earning enough to cover the payments, the cash flows are lacking. We don't think Mayr-Melnhof Karton is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Mayr-Melnhof Karton has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Mayr-Melnhof Karton not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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