Fondia Oyj (HEL:FONDIA) Will Pay A Larger Dividend Than Last Year At €0.52

Fondia Oyj's (HEL:FONDIA) dividend will be increasing from last year's payment of the same period to €0.52 on 2nd of April. This takes the dividend yield to 4.7%, which shareholders will be pleased with.

View our latest analysis for Fondia Oyj

Fondia Oyj's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Fondia Oyj's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 139% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to rise by 79.4% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 71% which brings it into quite a comfortable range.

Fondia Oyj's Dividend Has Lacked Consistency

Fondia Oyj has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the dividend has gone from €0.35 total annually to €0.32. This works out to be a decline of approximately 1.5% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Fondia Oyj May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Fondia Oyj's earnings per share has shrunk at approximately 2.8% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Fondia Oyj has 5 warning signs (and 2 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.