The board of Metso Oyj (HEL:METSO) has announced that it will be paying its dividend of €0.15 on the 6th of November, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 3.1%.
Check out our latest analysis for Metso Oyj
Metso Oyj's Payment Has Solid Earnings Coverage
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Metso Oyj's dividend was only 45% of earnings, however it was paying out 506% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
The next year is set to see EPS grow by 26.8%. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.
Metso Oyj Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2020, the annual payment back then was €0.10, compared to the most recent full-year payment of €0.30. This means that it has been growing its distributions at 44% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Metso Oyj has seen EPS rising for the last three years, at 31% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Metso Oyj could prove to be a strong dividend payer.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Metso Oyj is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Metso Oyj that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About HLSE:METSO
Metso Oyj
Provides technologies, end-to-end solutions, and services for aggregates, minerals processing, and metals refining industries in Europe, North and Central America, South America, the Asia Pacific, Greater China, Africa, the Middle East, and India.
Very undervalued with proven track record.