Valmet Oyj (HEL:VALMT) Has Announced A Dividend Of €0.68

The board of Valmet Oyj (HEL:VALMT) has announced that it will pay a dividend on the 8th of April, with investors receiving €0.68 per share. This means the annual payment is 4.9% of the current stock price, which is above the average for the industry.

View our latest analysis for Valmet Oyj

Valmet Oyj's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Valmet Oyj was paying out 89% of earnings, but a comparatively small 56% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 69.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 61% which would be quite comfortable going to take the dividend forward.

Valmet Oyj Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was €0.15 in 2015, and the most recent fiscal year payment was €1.35. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 2.5% per annum over the last five years, which admittedly is a bit slow. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 7 Valmet Oyj analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Valmet Oyj not quite the opportunity you were looking for? Why not check out our selection of top 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.