Metso Oyj's (HEL:METSO) Dividend Will Be Increased To €0.15

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. This takes the annual payment to 2.7% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Metso Oyj

Metso Oyj's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Metso Oyj's dividend was only 65% of earnings, however it was paying out 751% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 73.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 50% by next year, which is in a pretty sustainable range.

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. The dividend has gone from an annual total of €0.10 in 2020 to the most recent total annual payment of €0.30. This implies that the company grew its distributions at a yearly rate of about 44% over that duration. Metso Oyj has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown by 20% in the last year. This is a good sign, and could set the company up to be a solid dividend payer in the future if it continues. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have. We do note though, one year is too short a time to be drawing strong conclusions about a company's future prospects.

Our Thoughts On Metso Oyj's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Metso Oyj's payments are rock solid. While Metso Oyj is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Metso Oyj that you should be aware of before investing. 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.